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L INTERVIEW 



BETWEEN THE 



UNITED STATES SENATE COMMITTEE ON FINANCE 

AND THE 

HON. JOHN SHERMAN, 

SEORETAEY OW THE TREASURY, 



REFUNDING, RESUMPTION, LEGAL-TENDERS FOR CUSTOMS DUES, SINKING 

fund, and kindred subjects. 
January 30, 1880. 



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United States Senate 
Committee on Finance, 

January 30, 1880. 
Iu special session. Present: The chairman, Senators Kernan, Wal- 
lace, Beck, Morrill, Allison, Ferry. 

Secretary Sherman stated that he appeared before the committee in 
obedience to their request. 

The Chairman of the Committee stated that a number of proposi- 
tions upon which it was desired to obtain the Secretary's views, had 
been submitted by Senator Beck, a member of the committee, and then 
read the same, as follows : 

1. What reason, if any, there is for refusing to pass a bill authorizing 
the receipt of legal-tenders for customs dues. 

2. Why the trade dollar should not be converted into a standard dol- 
lar. 

3. What has beeu the cost of converting the interest-bearing debt, as 
it stood July 14th, 1870, to what it is now, including double interest, 
commissions, traveling expenses of agents, &c, and the use of public 
money by banks, and the value of its use, so as to determine whether 
the system should be. continued or changed. 

4. The effect tbe abolition of the legal-tender quality of greenbacks 
upon the paper currency. 

5. The necessity for a sinking fund and how it is managed. 

G. Whether silver coin received in payment of customs duties has 
beeu paid out for interest upon the public debt; and if not, why not. 

Senator Allison desired to know if this interview was to be sten- 
ographically reported, aud the committee decided that it should be. 

united states notes for customs dues. 

The Chairman. Mr. Secretary, will you address your answer to the 
first proposition : 

"What reason, if any, is there for refusing to pass a bill authorizing 
the receipt of legal-tenders for customs dues ? " 

Secretary Sherman. The act of February 25, 1862 (section 3694, B. S.), 
provides that all the duties on imported goods shall be paid in coin ; and 
the coin so paid shall be set apart as a special fund to be applied to two 
purposes, one of which is the payment in coin of interest on the bonds 
and notes of the United States. 

This is the obligation of the government that its coin revenue should 
be applied to the payment of interest on the public debt. So long as 
legal-tender notes are maintained at par and parties are willing to re- 
ceive them iu payment of coin interest, there is no objection to receiving 
legal-tender notes for customs dues. 

Since resumption it has been the practice of the department to thus 
receive them, but this practice can be kept up only as long as parties 
holding interest obligations are willing to accept the same notes in pay- 
ment thereof. If, by any unforeseen and untoward event, the notes 
shook! again depreciate in value below coin, the obligations of the gov- 
ernment would still require that interest on the public debt be paid in 
coin ; and if customs dues were payable in legal-tender notes, the de- 

3 



partinent would have no source from which to obtaiu the coin necessary 
to the payment of interest, for of course holders of interest obligations 
would not accept a depreciated currency when they were entitled by 
law to coin. In addition, I would add that in my annual report of 
December, 1878 (a year ago), I stated to Congress, after a pretty full 
examination, I thought it was my duty to give notice that on the 1st 
of January 1 would receive United States notes for customs duties, 
therein giving pretty full reasons for doing it, and I hoped then 
that Congress would take some action about it; but I have come 
to the conclusion since that it had better be allowed to stand just as it is — 
that as long as both parties, the government and the citizen, are willing 
to receive and take United States notes we had better let them do so, 
leaving the government the right to demand payment in coin for customs 
duties and the individual the authority to demand coin for interest of 
public debt. 

The Chairman. My objection is, that it disposes of the contract be- 
tween the government and the holder of its obligations — which is, in my 
view, a fixed contract only to be rescinded by mutual consent, and sub- 
stitutes a mere order of the Treasury Department. I admit that practi- 
cally it is enough that as long as the notes are equal to coin you may 
receive them; but the very moment the legal tenders depreciate there 
is a substantial as well as technical violation of the contract. My feel- 
ing is, and 1 have so argued in the Senate and elsewhere, that the law 
is quite enough as it stands; and though you made the very person who 
received these duties the redeeming agent of the government notes, I 
do not think still that the customs duties can be lawfully receivable iu 
anything else than that which the law requires. 

Mr. Allison. What would be the objection to a provision substan- 
tially of this character: Say that, " as long as the Treasury notes are 
convertible into coin at the sub-treasury in New York." 

The Chairman. " Redeemable" is the word. 

Mr. Allison. Well, convertible into or redeemable in coin, they shall 
be received for customs dues. 

Secretary Sherman. I have no objection at all to that. This order 
was made simply to avoid the inconvenience to the individual of pre- 
senting his notes at the sub-treasury, then carrying the coin received 
there to the custom-house, and then compelling the custom-house officer 
to take it back to the sub-treasury for deposit. 

The Chairman. Of course it was like an idle form, but it was an 
honest one. 

Mr. Allison. That would continue our obligation, and, at the same 
time, relieve you from what some now object to as a technical violation 
of a statute. 

Secretary Sherman. I will say that I issued this order with great 
reluctance, only after full examination, and upon the statement of the 
Attorney-General, who thought technically I could treat tbe note as a 
coin certificate. 

The Chairman. It might be that practically in its result. 

Secretary Sherman. We have always received coin certificates in 
payment of customs dues. 

Mr. Ferry, Then, if the law should require you to receive these 
notes in payment of customs dues, what would be the objection, as long 
as they are redeemable in coin, for you are required by. law to redeem 
them in coin, aud that would be merely a method of redemption 
and it would not matter whether you had actually redeemed them 
and paid out the coin or received them in payment for duties. Would 



not the declaration that they should be received iu payment of customs 
dues as long as they are redeemable in coin cover the ground ? 

Mr. Allison. Not as long as redeemable, but as long as redeemed 
in coin. 

Mr. Ferry. Then, that would imply that the government could reach 
a point in its fiscal condition where it would not redeem in coin. 

Secretary Sherman. I assumed that the United States would redeem 
in coin, and that this note was in effect a coiu-certificate that so much 
coin was in the Treasury awaiting demand. It seemed a great incon- 
venience to compel actual redemption of notes and actual payment of cus- 
toms dues iu coin, and a great popular outcry was being made on that 
account. I thought, therefore, I would make that order to receive the 
notes for customs dues, leaving it to Congress, (this order having been 
made during its session), to check me if I was assuming undue power. 

The Chairman. It was but technical, because you could by law pay 
these notes in coin or in a coin-certificate, and that coin-certificate is 
coin. It was simply a question of certifying that the coin was there 
subject to demand. But it is proposed now by a law to repeal the act 
of 1862. 

Mr. Wallace. The apprehension in regard to this subject-matter 
is that there may come a period when United States notes cannot be 
redeemed in coin, that such a contingency may arise. 

Secretary Sherman. O, certainly; it may arise under any form of 
paper money that has ever been devised. 

Mr. Wallace. Are you not to-day in a position in which you can 
at all hazards keep the United States notes redeemable in coin ? 

Secretary Sherman. I cannot foresee any condition of circumstances 
likely to arise in which the United States cannot redeem its notes in 
coin. We have $ 148,000,000 of coin in reserve over and above all liabili- 
ties ; but still we know that wars may come, pestilence may come, an 
adverse balance of trade, or some contingency of a kind which we can- 
not know of iu advance may arise. I therefore think it is wise to save 
the right of the United States to demand coin for customs duties if it 
should be driven to that exigency. 

Mr. Wallace. That is a remote contingency. 

The Chairman. Do you not think it is the right of the creditor 1 

Secretary Sherman. It is only possible through the consent of the 
creditor, for when the creditor demands coin we never pay him note?. 

The Chairman. I was speaking iu regard to the payment of these 
duties in coin ; do you regard that as a right the creditor can demand ? 

Secretary Sherman. It is a right that he would not care to ask for. 
It is for his convenience that customs dues are paid iu notes. 

Mr. Wallace. Suppose you made United States notes convertible 
into coin at every United States depository and receivable for all 
forms of government indebtedness — would not that be a practical means 
of keeping them at par, and maintaining always their equality with 
coin? 

Secretary Sherman. There is one part of your proposition that I 
would not advocate. I do not think it would be wise to make the gov- 
ernment notes redeemable anywhere except in one place — that place 
being such one as Congress may direct. The experience of other nations 
has proved that there must be one central reservoir where all demands 
must be met. 

Mr. Wallace. Should not the government notes be receivable, and 
interchangeable at every government depository 1 ? 

Secretary Sherman. They should all be received everywhere at par 



with coin ; but whether we should pay coin on obligations except at 
one place is a matter which I have doubt in regard to. 

Mr. Wallace. What has been the practice of the government in 
that regard ? 

The Chairman. It never had anything to redeem except the green- 
backs. 

Secretary Sherman. Exchange on New York is generally at par or 
a premium, and practically we so act. We do pay in gold wherever 
anybody wants it ordinarily, but we usually pay by drafts on New York, 
and they can be collected without loss to the holders. 

Mr. Ferry. I would like to ask if, in your judgment, the receiv- 
ability of greenbacks for customs dues would not tend to keep the value 
of the notes equal to gold ? 

Secretary Sherman. I think so. 

Mr. Ferry. If that be the case, the law of 1862 having been passed 
when our credit was low, and we had substantially no gold in the 
Treasury, and our present credit being high, with a large surplus of 
gold ample to redeem all notes outstanding, ought we now as a great 
government, in a time of peace and prosperity shield ourselves under 
a statute passed in our straits of 1862 ? Would it not be fairer for a 
government in our present condition to take its paper that it considers 
equal to coin for duties, and thus make it equal to coin. 

Secretary Sherman. My answer to that is that we have stipulated 
with the creditor that payment of duties shall be made in coin, and as 
long as the creditors shall have any possible interest in that, we have 
no-right to change it. Now, as long as we redeem the notes in coin at 
New York he is not interested in demanding a strict fulfillment of that 
pledge, that we should collect our customs dues in coin, because he vol- 
untarily waives it by receiving himself United States notes in lieu of that 
coin. I think, however, the stipulation in his favor ought to be left to 
protect him, and provide for any possible contingency of a change of 
circumstances. 

Mr. Ferryv is it your judgment that we should have this law con- 
tinue on the statute books as long as there is a creditor of the govern- 
ment ? 

Secretary Sherman. If I had the power and were in the Senate with 
you gentlemen, making the laws, I should have no objection to the pas- 
sage of this bill of Mr. Beck's, provided the simple amendment be added 
that while notes of the United States are redeemed according to law, 
they shall be receivable for all customs dues. With that qualification, 
I should vote for the bill with great pleasure. But I do not think it 
wise to surrender, by a repeal of that act, the stipulation in favor of the 
creditor. 

Mr. Ferry. Then you desire to hold the power to deny the creditor 
the right to obtain gold for his greenback '? 

Secretary Sherman. No. 

Mr. Ferry. But by including the words " while they are redeemed,"' 
you would continue to hold the power to deny the creditor, should ho 
present his greenback for gold. 

Secretary Sherman. This is a stipulation in favor of the bondholder 
that his interest shall be provided for out of a special fund. Now we 
simply say tbat as long as these United States notes are paid promptly 
in New York in coiu, we should not be forced or asked to keep up this 
stipulation, and that is all we say; but that whenever it is tor his in- 
terest, whenever we fail to redeem the notes according to the resumption 
act, we will then collect those duties in coin. 



Mr. Ferry. That is, hold the power to deny the gold to the creditor 
upon his demand. 

Secretary Sherman. That applies to both parties. 

Mr. Ferry. For instance, he presents the greenback and demands 
payment in coin; if you see that your condition is such that in your 
judgment it ought not to be paid, you want the power to deny payment 
to him. 

Secretary Sheeman. You are thinking about the resumption act, and 
I am talking about the payment of customs dues in United States notes. 

Mr. Ferry. But in case we are not meeting resumption — in case 
we cannot pay specie— you want to reserve the right to still receive coin 
for customs clues ? 

Secretary Sherman. Yes, because we have agreed to do that. 

Mr. Ferry. Should we now, in a condition of prosperity, shield our- 
selves under a law passed in 1862, in our extremity ? Should we not, 
when we are abundantly able, and ought to make good our promise to 
pay, make our paper equivalent to gold and receive it for customs dues 
and all other indebtedness ? Ought we now, in a season of prosperity, 
to anticipate a time when we may be unable to pay gold for our green- 
backs ! 

Secretary Sherman. I do not know but I have answered that by say- 
ing that I would do nothing about it. I would just let it stand as it is. 

Mr. Ferry. That is the point ? 

Secretary Sherman. Yes, sir. 

Mr. Allison. I want to ask you one further question. Would you re- 
gard it as a perfect compliance with the provisions of the law of 1862 
to pass now a law whereby it should be provided that as long as these 
notes are actually redeemed in coin they shall be received for public 
dues? That would be no violation in your judgment of our contract 
with the creditor ? 

Secretary Sherman. Xo ; I do not think it would. 

Mr. Allison. I agree with you. 

Secretary Sherman. I think that would be a substantial compliance 
with the contract. I do not think, however, it is very material any 
way, except that it is just as well for Congress to legislate upon this sub- 
ject and tell me what shall be done. I would rather they would. I 
would rather some bill should be passed upon this subject, and I be 
given the direction of Congress, than to let this payment of customs 
dues in United States notes stand upon my order, which, as I told .you 
before, I adopted only after full consideration and as a means of 
avoiding much inconvenience to the people. 

Mr. Ferry. What injury would be done to the public creditors now 
to repeal the law of 1862 % 

Secretary Sherman. You cannot do that unless the creditors would 
consent ; then we could repeal it. 

Mr. Ferry. Our bonds are above par ; all our obligations are above 
par, and what violation of an obligation would there be to a creditor 
under those circumstances? 

Secretary Sherman. Senator Bayard answered thatpointin his speech 
the other day. That stipulation in the contract with the creditor con- 
tinues until the last debt matures and is paid. 

The Chairman. The note has been printed with that express exemp- 
tion. 

Mr. Ferry. And that act should continue in force until the last debt 
matures % 
Secretary Sherman. Unless both parties, by mutual assent, or acqui- 



8 

escence, agree to a different course. No bondholder has ever complained 
of my course in reference to this matter of payment of customs dues 
with legal-tenders. 

Mr. Ferry. At the same time you recognize the fact that the original 
takers of the bonds do not now hold them, but that they have passed 
into other hands % 

Secretary Sherman. Yes, sir ; and they are passing from hand to 
hand every day. 

Mr. Ferry. And being above par, would naturally go into other 
hands? 

Secretary Sherman. They are continually being transferred from 
hand to hand. 

Mr. Beck. Section 3694 of the Revised Statutes reads thus : 

Sec. 3694. The coin paid for duties on imported goods shall be set apart as a special 
fund, and shall be applied as follows: 

First. To the payment in coin of the interest on the bonds and notes of the United 
States. 

Second. To the purchase or payment of one per centum of the entire debt of the United 
States, to be made within each fiscal year, which is to be set apart as a sinking fund, 
and the interest of which shall in like manner be applied to the purchase or payment 
of the public debt, as the Secretary of the Treasury shall from time to time direct. 

Third. The residue to be paid into the Treasury. 

Has there been any change in that law of which you are aware 1 

Secretary Sherman. No, I think not; except so far as the resumption 
act may be held to modify it. I do not know of any other change. 

Mr. Beck. That does not change auything as regards the receipts for 
customs. 

Secretary Sherman. No, sir. 

Mr. Beck. Then on what authority are you now receiving the legal- 
tender notes for customs dues ? 

Secretary Sherman. We receive the legal-tender notes in the nature 
of a coin-certificate — as a certificate of the United States of coin in the 
Treasury held for the payment of that note, thus treatiug legal-tender 
notes precisely as the law treats the coin-certificate. I ought to say the 
law you refer to was modified subsequently by providing for coin-certifi- 
cates, which certificates are the representatives of coin in the Treasury, 
and are receivable by the express terms of the law for customs dues, 
and we consequently treat them in that way. 

I will state that this point is more clearly set forth and more carefully 
expressed in the report I made in December, 1878, where I quoted this 
law and gave my reasons for believing that under the existing laws I 
could treat them as coin -certificates ; and I was supported in that view 
by the Attorney-General, who thought the law fairly sustained me in so 
doing. 

Mr. Beck. It is your opinion now that under the existing law, as 
sustained by the opinion of the Attorney-General, you have a right to 
receive legal-tender notes for customs? 

Secretary Sherman. I think I have. 

Mr. Beck. Then you regard the passage of a law authorizing them 
to be received for customs dues as unnecessary to give you any addi- 
tional power ? 

Secretary Sherman. No ; I think I have a right to receive them by 
the consent, express or implied, of both parties to the contract. While 
the United States notes are thus treated in the nature of a coin-certifi- 
cate, it is a practic al compliance with the law as long as the present state 
of affairs exists, but if the notes should for a moment fall below par I 
should deem it to be the duty of the Treasury at once to insist on the 



payment of customs dues in coin, unless Congress in the mean time pro- 
vided otherwise. 

Mr. Beck. You propose, therefore, under the present conditiou of 
things, to regard this law as now authorizing you to receive them, but 
you are unwilling that there should be a law to require you to do so. 
Is that the way 1 understand you"? 

Secretary Sherman. Yes ; requiring me to do it under a different 
state of facts than now exists. 

Mr. Beck. What contract is there between any creditor of the gov- 
ernment and any branch of the executive department of the government 
relative to the receipt of legal -tender notes for customs dues ? lam 
not speaking mw of the right of the creditor to demand payment in 
coin, for he has a right to demand it. 

Secretary Sherman. There is no other law except the law you have 
read, taken in couuection with the resumption act and the law pro- 
viding for coin -certificates. 

Mr. Beck. Have you copies of the orders that you issued to the cus- 
tom-house officers directing them to receive legal-tender notes for cus- 
toms dues? 

Secretary Sherman. There were two orders issued ; one concerning 
the payment of interest in notes, the other the receipt of notes for cus- 
toms dues. I hand you both. 

Circular instructions concerning the resumption of specie payments. 

1878. Treasury Department, 

Department No 135. Washington, D. C, December 14, 1878. 

Secretary's Office. a ' ' ' 

The following provision of law, and instructions thereunder, are published for the 
information and guidance of all concerned : 

"An act to provide for the resumption of specie payments. 

" Section 3. * * * And on and after the first day of January, anno Domini eight- 
een hundred and seventy-nine, the Secretary of the Treasury shall redeem, in coin, the 
United States legal-tender notes then outstanding, on their presentation for redemp- 
tion at the office of the assistant treasurer of the United States in the city of New 
York, in sums of not less than fifty dollars. * * * 

"Approved Jauuary 14, 1875." 

As the effect of the above section will be to remove any practical difference in the value 
of coin and notes as a circulating medium after the first of January next, no distinc- 
tion between them will be made in keeping, rendering, or settling the accounts of pub- 
lic officers, involving transactions which occur subsequently to that date. 

Matured coupons of the United States, and checks issued by the Treasurer of the 
United States for interest or principal of the public debt, by law payable in coin, will 
be paid by the assistant treasurer of the United States at New York, upon presenta- 
tion, in coin, or, if the claimant prefers, such coupons and checks will be paid by the 
the said assistant treasurer, or by any other independent Treasury officer, in United 
States notes. 

Such registered interest, payable by law in coin, as is paid on schedules at any other 
cities than New York will also be paid the claimant in coin, by check on the assistant 
treasurer of the United States at New York, which check may be cashed in United 
States notes if the holder prefer, or, if the claimant prefers, such interest may be paid 
r.o him direct in United States notes by the officer charged with the payment of the 
schedule. 

Any check or draft hereafter drawn in payment of a public obligation, by law pay- 
able in coin, will have that fact plainly noted thereon. 

JOHN SHERMAN, 

Secretary. 



10 

Circular letter to officers of customs. 

1878. Treasury Department, 

Secretary's ^fflce* 1 " Washington, D. C, December 21, 1873. 

Your attention is called to the provisions of the third section of the act of Congress 
approved January 14, 1875, providing that, on and after the first day of January, anno 
Domini eighteen hundred and seventy-nine, the Secretary of the Treasury shall redeem, 
in coin, the United States legal-tender notes then outstanding, on their presentation 
for redemption at the office of the assistant treasurer of the United States in the city 
of New York, in sums of not less than fifty dollars. 

By reason of this act, you are authorized to receive United States notes, as well as 
gold coin and standard silver dollars, in payment of duties on imports on and after the 
first day of January, 1879. 

Notes thus received will in every instance he deposited with the Treasurer, or some 
assistant treasurer of the United States, as are other collections of such duties, to he 
redeemed, from time to time, in coin, on government account, as the convenience of 
the service may demand. 

JOHN SHERMAN, 

Secretary. 

Mr. Bfck. The latter is the order concerning the receipt of' notes for 
customs dues % 

Secretary Sherman. Yes, sir. 

Mr. Beck, I desire to know, Mr. Secretary, whether it is not better, 
in your opinion, that the Congress of the Uuited States should prescribe 
the duties of executive officers, so that they can act in pursuance of 
ance of law rather than the executive officer should be acting on his own 
notions of what is best % 

Secretary SnERMAN. I say yes, decidedly. 

Mr. Beck. Is not that what we are proposing to do now by the pas- 
sage of this law which I seek to have enacted, and are you not opposing 
that condition of things '? 

Secretary Sherman. An executive officer, when there is a doubt about 
the law, must give his own construction of it, but should of course 
readily conformto the action of Congress as soon as it is declared. The 
objection I make is not to the passage of a law, but that the bill as pro- 
posed applies it to a possible future state of affairs such as did not exist 
when this order was made and does not now. 

Mr. Beck. Is it not to be presumed that the law-making power will 
be in session at least sufficiently often to make its laws conform to any 
existing exigency, and is it not fair to assume that Congress would do 
nearer what is right on its judgment than some Secretary would do on 
his judgment? 

Secretary Sherman. My answer to that is this : I called the atten- 
tion of Congress in December, 1878, to this condition of affairs, and 
receiving no dissent from the proposition that I made in the report at 
that time, in which I stated distinctly that in case Congress did not 
instruct me otherwise I would do so and so ; and subsequently not re- 
ceiving any objection, I issued this executive order. Now, if the Fi- 
nance Committee or any portion of the Congress of the Uuited States 
had expressed a doubt or taken any position upon the subject before the 
1st of January, 1879, I would have withheld this order. But you did 
not, although I waited until you had adjourned for the holidays before 
issuing the order. That is all I can say. I had no doubt myself, and 
have not now, after the full examination which I made, that I might 
consider these United States notes as in the nature of coin-certificates 
. and receive them for customs dues, but I do not object nor have I any 



11 

feeling but that all laws must emanate from Congress, and that the 
executive officer has not the right t'o disregard the law. 

Mr. Beck. I desire you to understand, Mr. Secretary, that I remem- 
ber very well the very full statement made in your report of what you 
then said you were going to do, and I endeavored at that time to have 
a law passed to conform to what you desired. The bill which I have 
now pending is to enable you, and every other Secretary, to do exactly 
what you are doiug and be protected by the law. 

Secretary Sherman. I should rather you would do that by prescrib- 
ing the exact terms under which these notes can be received for customs 
dues. 

The Chairman. Have you considered that if a law were now passed 
making United States notes unconditionally receivable for duties on 
imports, it would be an infraction of the law of February 25, 1862, and 
the contract with the public creditors contained in it? 

Secretary Sherman. I think it would; because it would not provide 
for a contingency that may happen. I repeat, however, that I would 
rather Congress, if it agrees with me that I did right in receiving these 
notes, should say so, and say how long it shall be continued. I think 
Congress owes it to the executive department. I think that Congress 
ought on this very delicate and important point to instruct the executive 
officer what to do, and if I were here I would feel it my duty to respond. 

Mr. Beck. That was the sole object I had in trying to pass this bill, 
agreeing with the Secretary in the fact that it ought to be done. I de- 
sire to know whether or not in the present existing condition of things, 
with the large redaction in the public debt, the lowering of the interest, 
the accumulation of gold on haud, and the power the Secretary has to 
sell bonds ad libitum— for I believe that is the claim 

Secretary Sherman. Yes, sir. 

The Chairman. Not quite ad libitum. He must sell them at par in 
gold, and he can only sell the bonds authorized under the act of 1870. 

Mr. Beck. He can sell five per cent, bonds. 

The Chairman. Of course, but only at par. 

Mr. Beck. You can sell five per ceut. bonds at par, ad libitum. Now r 
with all these favorable conditions, I ask you if there is any reasonable 
apprehension in your mind that any public creditor will be embarrassed 
in the collection of his interest by passing an act authorizing the legal- 
tender notes to be receivable for customs dues ? 

Secretary Sherman. I do not think so. I do not think there is any 
danger at present of that ; but at the same time it is the public creditor, 
and not myself, who must decide that. 

Mr. Beck. Has any public creditor complained at all of your action 
under the law since you have received legal-tender notes for customs 
dues "? 

Secretary Sherman. Not so far as I know, but some of the news- 
papers have complained of it as a stretch of executive authority. 

Mr. Beck. But no public creditor has complained to you as the chief 
officer of the Treasury Department? 

Secretary Sherman. O, no; none that I have ever heard of; indeed 
they are very glad to get the United States notes instead of gold. 

Mr. Beck. Up to this time, is not the security of the national debt 
to the public creditor being increased : first, by reduction of the national 
debt; second, by at least a temporarily prosperous condition of things; 
and, third, by the increase of the property of the country ? 

Secretary Sherman. O, yes. 

Mr. Beck. Is not the security increasing every day ? 



12 

Secretary Sherman. Yes, sir ; the security of the creditor is as ab- 
solutely sure as anything can be. Indeed I do not see how it can be 
any stronger. 

Mr. Beck. I wish to say that I do not wish to violate any contract 
made with the public creditor; but I was in hopes we could pass a law 
making these notes receivable for customs dues without iucurriug any 
suspicion of bad faith, for I would not incur anything of that Mud if I 
knew it. I remember iu your last message, on page xii, you say, in 
speaking of the repeal of the legal-tender clause: 

The Secretary, therefore, respectfully submits to Congress whether the legal-tender 
clause should not now be repealed as to all future contracts, and parties be left to 
stipulate the mode of payment. United States notes should still be receivable for all 
dues to the government, they should be promptly redeemed on demand, and ample 
provision made to secure such redemption. 

I regarded that language as a recommendation under the existing com 
dition of things — customs dues being a part of the dues to the govern- 
ment, and the language used being " should still be receivable for all 
dues to the Government" — that you would acquiesce in the passage of 
the bill I have offered. 

Secretary Sherman. The language of the report was eo presenti, that 
they are now receivable. 

Mr. Beck. You see the language would create the inference that I 
have given. 

Secretary Sherman. That was extended to all future, dues and justi- 
fied that inference. I have no trouble or fear about those words being 
in your bill, but I do not want to give a shadow of a doubt to any public 
creditor of our purpose to violate the contract. 

Mr. Beck. I understand you to say, then, that while you do not, as 
Secretary of the Treasury, desire to say anything from which any public 
creditor could for a moment suspect that you were diminishing, or en- 
dangering in any way, the security which he holds; that, judging from 
the past experience, the want of protest against it, the large security 
now held, and in your own opinion that there is no public debt better 
secured, you see no imminent danger in the passage of the law.. 

Secretary Sherman. O, no. 

Mr. Beck. And a change of circumstances would have to occur before 
danger could arise % 

Secretary Sherman. Yes, sir. The passage of such a law might excite 
comment among public creditors abroad who are anxious to seize upon 
anything through which to cast reproach upon our people and govern- 
ment. 

# Mr. Beck. Still the fact remains that they have not done so since you 
have been acting upon this order % 

Secretary Sherman. Yes. 

Mr. Beck. And our present condition is certainly better than when 
you began to receive notes for customs dues u ? 

Secretary Sherman. That is so. 

Mr. Ferry. You replied to the chairman that the passage of a law 
authorizing the receivability of greenbacks for duties would be a viola- 
tion of our obligation to the public creditor made in the act of 1862, re- 
quiring duties to be paid in coin. 

Secretary Sherman. Yes, sir. 

Mr. Ferry. If that be so, how do you reconcile your practice, under 
your order, of receiving greenbacks for duties, and consider it not to be 
a violation of our obligation under the law of 1862 "l 

Secretary Sherman. That is expressly based upon the fact that we 



13 

are now redeeming those notes in coin. As long as that condition of 
facts continues to exist we would maintain the order, but the very mo- 
ment a different state of facts occurs we would change the order. 

Mr. Ferry. If the practice under your order of receiving duties in 
these notes is not a breach of the obligation with the public creditor 
under the law of 1862, then, I ask, under present conditions, whether 
the enactment of a law authorizing you to receive them would be a vio- 
lation of it. In other words, would a law directing you to receive 
them for dues be any more a violation of our obligations than your order 
directing your officers to receive them for dues ? 

Secretary Sherman. Yes, sir $ I think it would. 

Mr. Ferry. To-day, under the present circumstances % 

Secretary Sherman. You must bear in mind that a law is a more per- 
manent rule of action. 

Mr. Ferry. It is repealable under different circumstances. 

Secretary Sherman. It has a much more valid and authoritative 
sanction than an executive order. 

Mr. Ferry. Any more than the fact that the receivability exists when 
you receive those notes for duties in the face of the law that requires 
them to be received in coin % You say you construe them into coin- 
certificates ; then, if to-day you construe them as coin-certificates, ought 
not a law to be passed declaring them coin-certificates % 

Secretary Sherman. I think I have answered that. That is a ques- 
tion which is rather within your province to decide than mine. 

Mr. Ferry. I ask you, as an executive officer, whether you think the 
passage of a law such as is pending would be a violation of the obliga- 
tions of the government ; and if that be the case, tell me the difference, 
as I cannot perceive it, why is your order, or the practice under your 
order, any less a violation than a law authorizing you to do the very 
thing which is now being done? 

Secretary Sherman. I think if you pass a law similar to my executive 
order there will be no objection ; but that recites the fact that the notes are 
redeemable in coin, and are redeemed in coin. If you put it on that 
ground you might enact the law as you propose. 

Mr. Ferry. That fact exists, and it is an acknowledged one through- 
out the country and the world, that not only are our greenbacks redeem- 
able in coin but they are redeemed in coin. You remarked that the 
creditor preferred to take the greenback to coin when they are equiv- 
alent. Upon that state of facts to-day — and of course we cannot sup- 
pose that it would change in the course of a week, the time necessary to 
pass a law — why would it be any more a violation of our obligations to 
pass a law authorizing you to do the very thing you are doing under an 
order % That is the point which I cannot reconcile my mind to. 

Secretary Sherman. If you pass a law in the language of this order, 
it would remove all my objections : 

Notes thus received will in every instance be deposited with the Treasurer or some 
assistant treasurer of the United States, as are other collections of such duties, to-be 
redeemed from time to time in coin on government account, as the convenience of the 
service may demand. 

When we receive these notes they are practically redeemed in one 
sense, and we so keep the accounts and treat them as notes redeemed in 
coin. If they are not at the time redeemable or redeemed in coin, the 
whole basis upon which this order is founded will fall. 

Mr. Ferry. Suppose I were a bondholder (which I am not) and you 
authorize your officers to receive the greenbacks for customs dues ; now 5 



14 

I have not given my consent to that; the fact that you say afterwards 
in your qrder that this is to be a matter of regulation and that they are 
finally to be redeemed in coin, does not relieve you of my claim upon 
the government that the duty shall be received in coin, in order that 
the interest on my bonds should be paid % If. that is the requirement of 
the law, why should any practice violate it — that is, by a non compli- 
ance ? I do not speak of violation in any offensive sense at all. If under 
an order you do a thing under the present state of facts, why is it ob- 
jectionable that a law should be passed authorizing you to do the very 
same thing ? That other matter — the last paragraph — is a regulation to 
the Treasurer; it goes into your treasury vault, and is simply a transfer 
from one account to another. 

Secretary Sherman. Here is the actual fact : These notes may have 
been presented to the Assistant Treasurer at the sub -treasury, situated 
on one side of Wall street, for payment in coin, the coin paid and carried 
over across the street to the collector at the custom-house to liquidate 
the duties, and from there carried back to the sub-treasury, and de- 
posited to the credit of the custom house officer, and all that must be 
done on the same day. We simply say that we will receive these notes 
from these people who are paying customs dues, and present them 
at the sub-treasury for redemption — that is, we will carry over the notes 
instead of the coin, and the sub-treasury will give us credit as coin. 

Mr. Ferry. Is there any law to do that ? 

Secretary Sherman. No express law. 

Mr. Ferry. You assume to do that transaction for their convenience, 
which the law does not authorize you to do in my judgment. 

Secretary Sherman. There was the fact. 

Mr. Ferry. Your order is universal, and you may apply it to San 
Francisco in the same way. 

Secretary Sherman. Yes, sir. The order extends throughout the 
United States. 

Mr. Allison. If I understand you, it is your judgment that where any 
promise has been made to any public creditor, that promise should 
be kept in its full spirit and intent. 

Secretary Sherman. Yes, sir. 

Mr. Allison. Although its violation might not involve any real loss ; 
and it is for that reason that you object to an absolute abrogation of 
this act of 1862. 

The Chairman. Unconditional? 

Mr. Allison. Unconditional. But I understand you not to object to 
a provision which would authorize you to receive these notes for customs 
.dues as long as they are actually redeemed as now provided in the re- 
sumption act. 

Secretary Sherman. No; I should be very glad if that were done. 

Mr. Allison. You think that would be in no sense a violation of our 
contract with the public creditor under the act of 1S62 ? 

Secretary Sherman. I do not see how it could be. It might be the 
most technical and barren change in the contract, but it would not be a 
substantial one. 

Mr. Allison. Though it was no more than that you think it ought 
not to be done. 

Secretary Sherman. Yes. 

Senator Allison. Now suppose, as between Chicago and New York, 
for example, the exchange should be adverse to Chicago — that is, 
suppose a Treasury note in Chicago should be at one-half per cent, 
discount as compared with gold, that it cost one - half per cent, to 



15 

convert the paper into coin in New York, and because of that difference 
in the exchange between those two cities the United States notes or 
Treasury note, or whatever it may be, should fall one-half per cent, 
below par — .would you then feel that you could receive it in payment for 
customs dues '? 

Secretary Sherman. Certainly. Such a case as that you suppose is 
not probable ; but still I would receive it as long as the government 
continued to redeem it at New York in coin. Because hogs are very 
abundant and money in very urgent demand at Cincinnati or Chicago, 
thus causing a variation in exchange, we cannot change our rules. 

Mr. Allison. But you would still receive for customs dues an obliga- 
tion of the Government which was at the point of receipt a half per cent, 
below the coiu. 

Secretary Sherman. Undoubtedly I would ; for the resumption act 
treats resumption in New York as resumption everywhere in the coun- 
try, and I would consequently do the same. In fact, it is always so. 

Mr. Allison. Would you make any difference. 

Secretary Sherman. I would make no difference. We do not now. 
United States notes are at a premium over gold everywhere, except in 
New York. 

Mr Allison. You say they are at a premium 1 

Secretary Sherman. There is a shade of difference. That is, the 
notes are preferred ; and they are preferred in New York even. 

Senator Ferry. The cost of transportation creates that difference in 
their favor ? 

Secretary Sherman. Yes ; we issued an order some time since, in 
which we required the party ordering specie to pay transportation 
charges, and it created a great deal of complaint. 

Senator Ferry. Your difficulty now, in New York even, is in supply- 
ing United States notes, uot in supplying coin % 

Secretary Sherman. That is so. But the surplus of coin put us in 
that condition. We had to pay out coin (and I was compelled to issue 
a peremptory order to that effect) in very large amounts, because we had 
not United States notes enough to meet the demand, 

Mr. Ferris Then the tendency now, as I understand it, is for coin 
to flow into the Treasury aud not out of it % 

Secretary Sherman. 'Yes, sir. 

Mr. Ferry. How long has that continued % 

Secretary Sherman. Since the 1st of July ; and I think to a very 
slight extent since the 1st of January, 1879. 

The Chairman. You have not sold any bonds since resumption, ex- 
cept for refunding % 

Secretary Sherman, We have not sold any bonds for resumption 
since resumption commenced. 

Mr. Allison. Is it not a fact that the tendency of coin has been into 
the Treasury, and not out of it ? 

Secretary Sherman. Yes, sir ; since resumption we could, if we had 
kept all the gold coin and bullion that came into the Treasury in the 
ordinary course of business, have had now over $200,000,000. 

Mr. Allison. You stated in the beginning of your remarks that you 
had $ 118,000,000 of coin reserve over and above all liabilities. Do you 
mean by that, that you have $148,000,000 of coin now applicable to the 
redemption of United States notes % 

Secretary Sherman. Yes, sir ; over and above all other liabilities. 
That reserve is a little larger now, however, than it will be, because 
there is some interest accruing not yet due, and some surplus revenue 



16 

which in due course will be paid for bonds for the sinking fund, leav- 
ing, however, a net resumption fund of about $135,000,000. 

Mr. Allison. Do you now issue coin certificates ? 

Secretary Sherman. Yes; we issue silver certificates, but no gold 
certificates. 

Mr. Allison. You do not Issue any coin certificates under the pro- 
visions which you alluded to a while ago ? 

Secretary Sherman. Xo. 

Mr. Allison. Your mode of accumulating coin is to exchange green- 
backs for coin instead of for coin certificates ? 

Secretary Sherman. The coin comes into the Treasury most of it 
through the mints, where bullion goes for coinage. A large acquisition 
of coin has come from foreign lands, and has been taken to the ass^y 
office to be melted, and then finally paid for by the Treasurer in United 
States notes. 

Mr. Allison. You remarked also that, in addition to this coin reserve 
which you have of $148,000,000, you regarded your power as ample and 
complete to sell 5 per cent, bonds at not less than par in coin for the 
purpose of maintaining these notes at par. 

Secretary Sherman. Yes ; 4 per cents, 4£ per cents, or 5 per cents. 

Mr. Allison. Just whichever one of these three classes of bonds you 
please; and the only restriction upon you is that you are not to sell 
them at less than par in coin ? 

Secretary Sherman. That is the law. 

Mr. Allison. So that your means after all are ample and complete 
for maintaining these notes at par in coin J ? 

Secretary Sherman. Yes, sir ; and I think it is better to have them 
ample, because the fact that this power does exist is a great protection 
to resumption, and it is a kind of power that no public officer would dare 
to abuse ; for he would be at once assailed by everybody. 

Mr. Allison. I have no doubt about that. It is jus.; as complete as 
though you had $500,000,000 of 5 per cent, bonds set apart as a particu- 
lar fund in the Treasury to redeem those notes. 

Secretary Sherman. Certainly. 

Senator Beck. Desiring of course, as I do, to see legal-tender notes 
received for all customs dues, I wish to ask you if the present action of 
the Treasury Department in receiving them in that way, as it now does, 
is not liable to be reversed by any Secretary who may succeed you and 
take a more limited view of his powers under the law f 

Secretary Sherman. Certainly 

Mr. Beck. And is not that in itself an uncertainty '? 

Secretary Sherman. Any order made by a department could be re- 
versed, except in certain cases of tariff dues. 

Mr. Beck. And therefore that uncertainty hangs now over the con- 
tinuance of the receipt of these notes for customs dues. 

Secretary Sherman. Any Secretary may reverse that order. I could 
do it myself, and any other succeeding Secretary might do it. 

Mr. Beck. Yes ; but I am not apprehensive that you are about to 
do it. 

Secretary Sherman. Certainly not. 

Mr. Beck. I am speaking of the uncertainty of the existing coudition 
of things under that order — its being subject to reversal by you or by auy 
successor you might have. Is not the tendency, through the receipt of 
legal-tenders for customs dues, to appreciate their value, first, by rea- 
son of the convenience ; second, because a merchant of San Francisco, 



17- 
or S.iiut Paul, or any remote point, being able to procure gold in Xew 
York only, finds it much more convenient to use legal-tender notes? 

Secretary Sherman. Undoubtedly that gives them more circulation. 

Mr. Beck. And, with one point to redeem at, is not the convenience 
a great deal to the merchant to pay in notes ! 

Secretary Sherman. Certainly. We do not redeem United States 
notes except in ISTew York, because we have to obey the law ; but we 
pay out gold and silver everywhere on current obligations. 

Mr. Beck. You say that the receipt of these notes for customs dues 
gives them a shade of additional value because it gives them additional 
use. 

Secretary Sherman. They are more convenient to use. 

Mr. Beck. Any additional use, of course, has a tendency to enhance 
the value of those notes. 

Secretary Sherman. That is true. 

Mr. Ferry. There is just one question that came up to my mind by 
the reply of the Secretary that he could change his own order ; it 
brought to my miud this question : If you should, as you nave the right 
to, reverse your order permitting the greenbacks to be received for du- 
ties, then the bondholder holds his rights against the Government of the 
United States — payment to him of interest and the payment of princi- 
pal of his bonds — subject to executive order. If you can reverse this' 
order which permits greenbacks to be received for duties at any time, 
are his rights protected "? 

Secretary Sherman. The creditor could not be possibly injured by 
the receipt of United States notes for customs dues as long as they are 
redeemed in coin. It is not presumed that the creditor any more than 
anybody else would be a fool and would object to that which was so 
greatly to the public benefit and not to his injury. 

Senator Ferry. Let me cite a case that might occur : Having the se- 
crets of the administration, you might apprehend war; there might be 
reasons that would appear to you which would not appear to any other 
person, and having that in charge, you might reverse this order. Would 
not that be a violation of the rights of the creditor of the government 
before the justification was apparently public ; and would it not be 
more liabie under an executive order changeable at pleasure than under 
a law which would require an act of Congress to reverse it % 

Secretary Sherman. Well, I do not know that I see the point. 

Mr. Allison. The order is reversed for the protection of the creditor. 

Mr. Ferry. It changes the relations, whether it is to be done by ex- 
ecutive order or by law. It is simply that point. I cannot possibly see 
the difference as to the violation of the obligation with the creditor be- 
tween the passage of a law that authorizes the same fact and an execu- 
tive order which reaches the same end. In other words, you order that 
greenbacks be received for dues, and yet you are opposed to the passage 
of a law to do the same thing. 

Secretary Sherman. Unless the law provides, as I have provided in 
this order, that it shall only be done while the redemption of the United 
States notes continues; with that modification I have no objection to 
the bill at all. 

Mr. Beck. Have you made any orders for the payment of gold and 
silver and for their issue in disbursements % 

Secretary Sherman. Yes, sir, I have ; here is my order of October 8, 
1879. 

The Chairman. Is that in the printed book f 
2sh 



18 

Secretary Sherman. No, it is the Treasurer's order ; but the order 
directing it and the reasons given are in the printed book ; here it is. 

Treasury of the United States, 

Washington, October 8, 1879. 
Sir : It is the practice in this office to pay in coin twenty per cent, the amount of 
current obligations of the government presented — ten per cent, in standard silver dol- 
lars and ten per cent, in gold coin. 

At the suggestion of the Secretary you are hereby instructed to make, in like propor- 
tion, payment of current obligations of the government in silver and gold, giving to 
the payee in payment of the balance gold or silver coin, if desired by him. The ten 
per cent, in standard silver dollars should be furnished to United States disbursing 
officers in actual coin ; to private parties, banks, &c, payment may be made either in 
silver dollars or silver certificates. Silver certificates will be sent you upon applica- 
tion to the Treasurer. This letter is not intended to affect any existing arrangement 
with the clearing-house. 
Very respectfully, 

JAS. GILFILLAN, 
Treasurer United States. 
Hon. Thomas Hillhouse, 

Assistant Treasurer United States, New York. 

[Note. — "Similar instructions, excepting the clause relating to the clearing-house, 
sent to all other sub-treasury offices."] 

The Chairman. Then it amounted to the resumption of the payment 
of gold and silver in full, if any one desired it ; or whether they desired 
it or not, it .was a compulsory payment, excepting at the clearing-house, 
of twenty per cent, in gold and silver, and that was an equal payment 
of each, all over the country"? 

Secretary Sherman. Yes, sir. 

The Chairman. Does that apply to every disbursing agent of the 
government? 

Secretary Sherman. Every assistant treasurer, and, consequently, 
every disbursing officer, because the sub-treasurers pay out the money 
to the disbursing officers and pay them according to the directions in 
this order. /- 

The Chairman. The object of that order was very obvious ; it was to 
diffuse and put in circulation the gold and silver coin. 

Secretary Sherman. It was because we were comparatively short of 
United States notes and had plenty of gold and silver. 

The Chairman. The notes were not in the Treasury and this coin was 
there, and you paid it out in this way and gave this order so that you 
should not be short of United States notes ? 

Secretary Sherman. Yes, sir. 

Mr. Beck. Do I understand you to say that in these orders you re- 
quired persons to whom interest on the public debt was due to take 20 
per cent, in coin. 

Secretary Sherman. There was no distinction in that matter. 

Mr. Beck. And did you do that? 

Secretary Sherman. We did. 

Mr. Beck. And required them to take it? 

Secretary Sherman. Except this : the great body of our interest is 
paid by checks on New York, and as a matter of convenience they are 
usually collected through the clearing-house. We do that for our owd 
convenience, because it would be a very expensive operation for the 
government to transport the coin necessary to pay the interest on the 
debt to the different places ; therefore, as a rule, we pay in drafts on 
New York. 

Mr. Allison. That is, on registered bonds ? 



19 

Secretary Sherman. Yes, sir. The Treasurer also issues checks on 
Xew York for coupons presented for payment. 

Mr. Allison. Before passing from that order I wish to ask you a 
question : I understand you that your order was made because of the 
great accumulation of coin in the Treasury ? 

Secretary Sherman. Yes, sir. 

Mr. Allison. And because you did not have enough United States 
notes to meet the demand ? 

Secretary Sherman. The table which I have here will show that fact. 

Mr. Allison. I want it to show on the record so that it is perfectly 
clear. 

Secretary Sherman. O, yes, of course, that is perfectly clear. If any- 
body wanted the whole paid in coin he could obtain it. 

Mr. Allison. But it was a compulsory payment of twenty per cent, 
in coin % 

The Chairman. Compulsory reception. 

Mr. Allison. As I understand, it was a compulsory payment ; he 
compelled everybody to take coin in lieu of paper as a payment on the 
part of the Treasurer ? 

The Chairman. Yes, sir. 

Secretary Sherman. The monthly statement will come out to-morrow, 
and I will take the liberty of embodying it in the report of these pro- 
ceedings. 



20 



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Mr. Beck. What I desired in this whole matter was to obtain your 
views fully, and then let Congress, after an examination of your state- 
ments, decide whether it is better to have an executive order or a law 
on the subject. I believe in a law in preference to an order. 

EXCHANGE OE TRADE-DOLLARS. 

Mr. Beck. I have introduced several bills to facilitate the exchange 
of trade for standard dollars. 

Secretary Sherman. The bill which I have here is a House bill. 
There is no objection in my mind to the object of this bill; that is, to 
provide for the exchange of the trade-dollar for the standard silver dollar ; 
the only point is whether the trade-dollar shall be treated as bullion or as 
a coined dollar of the United States. Now, I am clearly of the opinion 
that it ought to be treated as so much bullion issued at the expense of 
merchants for their convenience and benefit, and without profit to the 
United States, and therefore not entitled to any preference over other 
bullion, and we might say not to so much, because it was issued to pri- 
vate parties for their benefit and at their cost, but stamped by us merely 
to enable the coins to be used to better advantage in a foreign market. 
I have not, therefore, any objection to the bill if you allow us to pay 
the same for these trade-dollars as for other bullion. 

Mr. Wallace. You have that authority now under the present law. 

Mr. Ferry. Will you have the bill read as it was amended in the 
committee ? 

That the Secretary of the Treasury shall cause to be exchanged, at the Treasury and 
at all sub-treasuries of the Uuited States, legal-tender silver dollars for trade-dollars at 
their market value, regarded as bullion ; and shall recoin the said trade dollars into 
legal-tender dollars, as now provided by law; and shall stop the further coinage of 
trade-dollars: Provided, That tro de-dollars that have been "chopped" or restamped 
for circulation in China or other foreign countries shall be excluded from the provisions 
of this act. 

Mr. Ferry. That is providing for the purchase of trade dollars at 
their market rate as bullion. 

Secretary Sherman. That is it. 

Mr. Beck. Is there not a good deal of hardship that a dollar like that, 
with seven and a half more grains of silver in it than the standard dol- 
lar, in the hands of the people all over the country, taking it and believ- 
ing it to be a dollar ; and is it not a shame, for the little margin of profit 
to the government, to have complaints made that we are depreciating- 
it and buying it cheaper"? Had we not better take it in exchange for 
standard dollars ? 

Secretary Sherman. I would say that there are five or six millions 
of trade-dollars in the country at the present time, and by that method 
of redemption it would cost the government about a million dollars; 
that would be one objection ; but the great bulk of these trade-dollars 
has goue abroad, and they amount in the aggregate to some thirty-four 
or thirty-five millions. We have official information that they are not 
chopped ; that they are held by the Hong-Kong and China merchants, 
who keep them as bullion and count them as bullion ; but the very mo- 
ment you give them this factitious value they would be brought back 
again to this country, and speculated upon for the profit which would 
accrue from the difference between their real and factitious values. I 
really believe if you would attempt to do that you would stop the pur- 
chase of silver bullion and do much damage. 

Mr. Beck. And you think that the inconvenience caused by the few 



22 

that are here would be much less than the loss sustained through the 
return of those now held abroad ? 

Secretary Sherman. They have a certain value for shipment abroad, 
and they are very often nearly at par in San Francisco. I think it is 
better for the people to lose this little percentage than to have the whole 
of this mass thrown upon us. 

The Chairman. I have noticed the sales of a quantity in San Fran- 
cisco at' 99 J cents, for shipment to China. 

Mr. Allison. They have been at that figure in ]^ew York. 

Secretary Sherman. Then there is no harm done ; but if you pass a 
law requiring us to pay 100 cents for silver bullion worth 89 cents, it is 
a loss of over 10 per cent, on the whole mass. 

Mr. Wallace. What would be the objection to allowing, an exchange 
of them for subsidiary coin in limited amounts ? 

Secretary Sherman. That would amount to the same thing. We have 
already over nineteen millions of the subsidiary coin loading us down, 
and we do not want any more. That will be absorbed after a while. 

The Chairman. How much fractional coin have you on hand ? 

Secretary Sherman. About twenty millions. 

Mr. Beck. That is not all there is 1 

Secretary Sherman. We have that amount in the Treasury. Fourteen 
millions of that came back through redemptions after the law of last 
session was passed, and of that fourteen millions redeemed over 20 
per cent, was of coin dated before the war, which had been hoarded in 
stockings and scattered in foreign countries, and which had come back 
to be redeemed. 

The Chairman. In multiples of twenty dollars. 

Secretary Sherman. We have, I see by referriug to the tables, 
$19,972,000 on hand now ; when your law passed authorizing the re- 
demption with legal tenders we had about six millions. 

Mr. Wallace. There would bono objection to the taking it in amounts 
of twenty dollars in exchange for the trade dollars. 

Secretary Sherman. That would give them ten per cent, profit, and 
it would result in bringing all the trade-dollars back into the country. 
That subsidiary coin would get into circulation and must be redeemed 
again. The only way we can keep this money — the silver dollar and 
the subsidiary coin — at par with the greenback and gold is by always 
freely receiving it; therefore, I approved of your order of last session. 
It is our policy not to force them out unwillingly, but to use every pos- 
sible proper means to circulate them. 

Mr. Ferry. As subsidiary to that object, and to keep the silver dol- 
lar at par, would it not be wise to retire all the small bills under five 
dollars and make room for more silver % 

Secretary Sherman. I am not ready to propose that. Perhaps some 
of the rest are. 

Mr. Beck. Is that substantially what you desire to say about the ex- 
change of the trade-dollar % 

Secretary Sherman. I desire to say that in an interview with a com- 
mittee of the House, embodied in this document which I hold in my 
hand, the whole question about the subsidiary coin and the silver trade- 
dollar was gone over, and they published this, which is a very full state- 
ment. 

(See appendix A.) 

Mr. Beck. Have you any other special suggestions in addition to 
these? We would be glad to have them. 

The Chairman. This is a pretty full statement. 



23 

Secretary SnERMAN. This was made when it was fresh matter and it 
was fully discussed. 

Mr. Ferry. Id speaking in reply to a question of mine in reference 
to the retirement of small bills under five dollars, you said you were 
not a bold enough man to propose it. Will you give your opiuion as to 
the propriety of it? 

Secretary Sherman. Well, I do not see any object to attain. Such 
a retirement would put a certain class of people to great inconvenience. 
The small bills are so convenient to send by mail ; especially would the 
publishers of newspapers be inconvenienced. I do not see any great 
object to be accomplished by forcing silver into circulation by such 
means. 

Mr. Ferry. Would not the inconvenience be remedied by the use of 
the money-order system? 

Secretary Sherman. The expense of that is an objection. 

'Mr. Ferry. Would it not open channels for some twenty to twenty- 
five millions of silver to circulate in ?• 

Secretary Sherman. It might. 

Mr. Ferry. To meet the retirement of these notes? 

Secretary Sherman. What use would it be to us to force silver out, 
when we can just as well issue United States notes? 

Mr. Ferry. The object is to make it equivalent ; and if they are to 
run together, you have the fact right before the people in their daily 
practice that we are continuing to resume ; one is the equivalent of the 
other. If by the regulations of the Treasury or by practice there is no 
silver in circulation, and you find difficulty in getting it out, by this 
method you would open a chaunel for $25,000,000 more. If it is not 
out, then the currency takes its place ; it it is out, it makes that much 
more room for currency — that is, it gives a greater volume of currency, 
because you hold about so much reserve in the Treasury ; if silver was 
not there, currency would be. 

Secretary Sherman. It strikes me that the better way is to let every- 
body have just what kind of money he chooses. Make the different 
kinds of currency equal to each other, and give every man his choice. 
You may have greenbacks, gold and silver in various forms, and national- 
bank bills, but let the gold and silver coin be the standard of value to 
measure everything else, and maintain the others at par in that coin, 
letting every man choose what he shall be paid in. I do not believe it 
will do to attempt to draw in these small bills. 

Mr. Ferry. I thought it would be a means of distributing the silver. 

RErEAL OF LEGAL TENDER CLAUSE. 

The Chairman. The next proposition is 

" The effect the abolition of the legal-tender quality of the greenbacks 
will have on our paper curreucy." 

Mr. Beck. I said in my note that I would inquire into the effect the 
abolition of the legal-tender quality of -the greenbacks will have on our. 
paper currency. The question is a long one, but I desire to &et the 
Secretary's views upon it. I will read section 35S8 of the Revised 
Statutes, which is in these words: 

United States notes shall he lawful money, and a legal tender in payment of all 
debts, public and private, within tbo United States, except for dues on imports and 
interest ou the public debt. 



24 

Section 5182 provides, in regard to the national-bank notes, this : 

After any association receiving circulating notes under this Title has caused its 
promise to pay such notes on demand to be signed by the president or vice-president 
and cashier thereof, in such manner as to make them obligatory promissory notes, pay- 
able on demand, at its place of business, such association may issue and circulate the 
same as money. And the same shall be received at par in all parts of the United States 
in payment of taxes, excises, public lands, and all other dues to the United States, ex- 
cept duties on impor.s; and also for all salaries and other debts and demands owing 
by the United States to individuals, corporations, and associations within the United 
States, except interest on the public debt, aid in redemption of the national currency 

Section 5196 is as follows: 

Every national banking association formed or existing under this Title, shall take and 
receive at par, for any debt or liability to it, any and all notes or bills issued by any 
lawfully organized national banking association. But this provision shall not apply to 
any association organized for the purpose of issuing notes payable in gold. 

Now, the resolution which the Senate is considering, whicb is substan- 
tially the recommendation of the Secretary, I believe, is that from and 
after the passage of this resolution all United States notes shall be re- 
ceivable for all dues to the United States except duties on imports, and 
'shall not be otherwise a legal tender. My object is to ask the Secretary 
whether, in case his recommendation and the present resolution become 
a law, the Treasury Department will have any power to require any per- 
son to receive legal-tender notes in liquidation of any obligations or lia- 
bilities of the United States, and whether or not national-bank notes will 
not, after its passage, by retaining the powers they now have, be the 
only paper money the government or individuals can require any per- 
son to accept. 

The Chairman. Do you suppose that there is now any compulsory 
legal-tender power attached ? 

Mr. Beck. Yes, sir. 

Mr. Allison. It is complete. You are bound to take them for your 
salary to-day. 

Mr. Beck. Every national-bank note is a legal tender to you by the 
government aud^you cannot help it. 

The Chairman. I very much doubt that. 

Mr. Beck. My question is whether there will be any power to require 
any person to receive legal-tender notes iu satisfaction of any obligations 
or liabilities of the United States, and whether or not national-bank notes 
will not, after the passage of this resolution, by retaining their powers, 
be the only paper money the government or individuals can require any 
person to accept. 

Secretary Sherman. So far as the general theory of making a legal 
tender of the United States note, now that we have attained resump- 
tion, is concerned, I desire to say that in my annual report I have stated 
my views in reference thereto as carefully and fully as I possibly could. 
What I said iu that report is as full and fair a statement of my views as 
I can possibly give now. I reproduce it : 

The Secretary respectfully calls the attention of Congress to the question whether 
United States notes ought still to be a legal tender in the payment of debts. The 
power of Congress to make them such was asserted by Congress during the war, and 
was upheld by the Supreme Court. The power to reissue them in time of peace, alter 
they are once redeemed, is still contested in that court. Prior to 1862 only gold and 
silver wcro a legal tender. Bullion was deposited by private individuals in the mints 
and coined in convenient forms and designs, iudicatit g weight and liueuess. Paper 
money is a promise to pay such com. No constitutional objection is raised against the 
issue of notes not bearing interest to be used as a part of the circulating medium. The 
chief objection to the emission of paper.mocey by the government grows out of the 
legal-tender clause, for without this the United States note would be measured by its 
convenience in use, its safety, and its prompt redemption. Iu war, and during a grave 



25 

public exigency, other considerations may properly prevail; bat it would seem that 
during peace and especially during times of prosperity aud surplus revenue, the 
promissory note of the United States ought to stand like any other promissory uote. 
It should be current money only by being promptly redeemed in coiu on demand. 
The note of the United States is now received for all public dues, it is carefully limited 
in amount, it is promptly redeemed on demand, and ample reserves in coin are pro- 
vided to give confidence in and security for such redemption. With these conditions 
maintained, the United Spates note will be readily received and paid on all demands. 
While they are maintained, the legal-tender clause gives no additional credit or sanc- 
tion to the notes, but tends to impair confidence and to create fears of overissue. It 
would seem, therefore, that now and during the maiutenance of resumption it is a use- 
less and objectionable assertion of power, which Congress might now repeal on the 
ground of expediency alone. When it is considered that its constitutionality is seri- 
ously contested, andYnat from its nature it is subject to grave abuse, it would now 
appear to be wise to withdraw the exercise of such a power, leaving it in reserve to be 
again resorted to in such a period of war or grave emergency as existed in 1862. The 
Government derives au advantage in circulating its notes without interest, and the 
people prefer such notes to coiu, as money, for their convenience in use and their cer- 
tain redemption in coin on demand. This mutual advantage may be secured without 
the exercise of questionable power ; nor need any inconvenience arise from the repeal 
of the legal-tender clause as to future contracts. Contracting parties may stipulate 
for either gold or silver coin or current money. In the absence of an express stipula- 
tion for coin, the reasonable presumption would exist that the parties contemplated 
payment in current money, and such presumption might pnyperly be declared by law 
and the contract enforced accordingly. 

The Secretary, therefore, respectfully submits to Congress whether the legal-tender 
clause should not now be repealed as to all future contracts, and parties be left to 
stipulate the mode of payment. United States notes should still be receivable for all 
dues to the government, they should be promptly redeemed on demand, and ample 
provision made to secure such redemption. 

Mr. Beck. I was not asking for tbat now, because you have already- 
given it. I simply ask whether, if that resolution or your recommenda- 
tion become a law, the United States will have power to require any per- 
son to take United States notes, or whether the government will have 
any power to issue them at all, and whether the national-bank notes, 
through the power given by the sections I have recited, will not remain 
the only paper money that any person can be required to pay or take. 

Secretary Sherman. The question presented by you is one rather of 
construction of the bill of Mr. Bayard, upon which, as a matter of del- 
icacy, it would not be exactly right for me to enter ; but I certainly am 
not in favor of any bill that will give to the national-bank note any 
quality, use, or value that is not given to the United States note. In- 
deed, I would give to the United States note every quality, attribute, or 
use that can be given to it by Congress without trenching upon ques- 
tionable and dangerous powers, such as that of making a promise to 
pay money — actual money — in contracts between private individuals. 

Mr. Beck. My question was, What power the United States will have 
•to require any person to take any of its notes ? 

Secretary Sherman. The United States as a creditor has theundoubted 
power to say what it will receive in payment of that which is due 
its own. It may take notes or bank notes, as it chooses. The re- 
peal of the legal- tender clause, in my judgment, would not affect 
auy provision of the bank law at all. Nor will it have any effect upon 
the use or convenience or negotiability of the United States notes, ex- 
cept it will take away from them that forced power by which a promise 
to pay money is made a substitute for actual money when the creditor 
is not willing to receive it. I do not think that after resumption it is a 
power necessary to the credit of United States notes, and I think it is a 
very questionable power on the part of Congress to make a promise to 
pay money an actual legal tender in payment of debts. If it was per- 
fectly clear, and if I. did not think it was a question that would con- 
stantly be coutested before the courts, I should have no objection to the 



26 

legal-tender quality of tbe notes continuing, at least as loug as they are 
redeemed at sight io coin, fori favor the issue and circulation of United 
States notes as lawful money and would give them every attribute de- 
sirable and lawful for that purpose ; but now, as they are subject to 
doubt, that question will be continually arising, and as the legal-ten- 
der attribute given to the notes is of no value and does not add to their 
circulation, I am in favor of taking it away. 

Mr. Beck. You have said that in your report very well ; but the ques- 
tion remains, which I put very distinctly : If your recommendations or 
this resolution should be adopted, what power, if any, will the United 
States have to issue any of these United States notes? 

Secretary Sherman. O, well, there is no question as to the power 
of the United States to issue its notes, and, so far as they are willing to 
be taken as money, there can be no question of power raised. The only 
question of power that ever was raised about them was as to the legal- 
tender quality. 

Mr. Beck. After the legal-tender quality is taken away, has the 
United States the power left to make any human being take one of 
them? 

Mr. Morrill. That is simply asking whether, after the legal- tender 
quality is repealed, it will exist. 

Mr. Beck. I repeat my question : Under those circumstances would 
the United States have the power to make any human being take one 
of them ? 

Secretary Sherman. I say yes. It has the same power to make 
every person take United States notes that it has to make them take 
bank notes; but it has no power, as it is claimed, to make any one, as 
a compulsory matter, take United States notes or bank notes. It never 
has undertaken to make the bank note a legal tender in payment of debts. 
It has provided certain cases where they may be received or paid. 

Mr. Beck. I repeat my question : What power has the United States, 
after the legal-tender quality is taken away from these notes, to require 
any person or corporation to take them, with that legal-tender quality 
destroyed ? 

Secretary Sherman. It has the power to prescribe what it will pay 
its officers. It has the power to prescribe what it will receive for dues 
of every character. It has the power to declare these notes lawful 
money, and that all contracts which do not prescribe on their face coin 
payments shall be held to be payable* in such money. The only doubt 
about the power of Congress is whether it can say that a promise to 
pay a dollar is an actual dollar. 

Mr. Beck. The question now before the Senate reads, u That they, 
shall be receivable for all dues to the United States, except duties on 
imports, and shall not otherwise be a legal tender." I ask you, provided 
that becomes a law, what power the United States has to require any 
person to take any of those notes for anything? 

Mr. Kernan. Your question is, I suppose, who could thev make take 
them ? 

Mr. Allison. Assuming that resolution to pass. 

Mr. Beck. Who could the Uuited States make take them, assuming 
that to be the law? Is there any power remaining in the United States 
to make any person take them at all ? 

Secretary Sherman. Well, I cannot answer that more clearly than 
I have already. 

The Chairman. It answers itself. 



27 ; 

Secretary Sherman. Obligations incurred prior to the passage of the 
proposed law should be excepted. 

Mr. Beck. I am assuming that those obligations have been paid. 
Can they then make any person take them ? 

Secretary Sherman. "The law might provide that they shall be re- 
ceived in all payments to or from the government not otherwise pro- 
vided for. 

Mr, Beck. But I am not asking that, Mr. Secretary. 

Mr. Allison. I have a curiosity to know your opinion a.bout that 
myself, Mr. Secretary. 

Secretary Sherman. This resolution has been introduced by Senator 
Bayard, and I would probably seek to amend it. 

Mr. Beck. The resolution is up before us now for consideration, and 
I ask you, if that becomes a law just as it is proposed there, would there 
be any power left in the United States to require me, as a member of 
Congress, or any person to whom the United States owes money, to 
take United States notes'? 

The Chairman. I hope not. 

Mr. Beck. I ask you that question on the supposition that this reso- 
lution becomes a law. 

Secretary Sherman. If it becomes a law in its present form, it would 
repeal all these clauses which authorize the notes to be paid for any 
class of debts. 

Mr. Beck. That is what I ask you. 

Secretary Sherman. That is what the Senator intends, I have no 
doubt ; but my impression is that a repeal of the legal-tender clause, as 
I understand it, would not have that effect. It would not affect, in the 
slightest degree, any of the laws referred to, except it would take away 
the power from any one person to compel another person whom he had 
promised to pay actual money to take promises instead. 

Mr. Beck. You mean that would be the result if the legal-tender 
clause were taken away in some other,- form ; but if the resolution becomes 
a law, the effect I have stated would be produced ? 

Secretary Sherman. I do not want to criticise the resolution, and I 
hardly think it proper for you to ask me to do so. 

The Chairman. If it does not take away the legal-tender character 
of the notes it fails of its intention. 

Mr. Beck. You agree, then, that that is a fact 5 and, agreeing that it 
is a fact, I desire you to read section 5182, from the word " and," and 
say whether all bank notes, even after this resolution passes, will not 
remain a legal tender to banks, to creditors of the government, to 
members of Congress, and to everybody else? 

The Chairman. To creditors of the government — all of them f 

Mr. Beck. Yes, sir; all but the bondholders. 

Mr. Allison. There is no doubt about that. 

Mr. Beck. What I want to show is that this resolution destroys 
everything but the bank notes, and that all their power remains. 

Mr. Kernan. Do you understand that if this resolution passes na- 
tional-bank notes would still be a legal tender J ? 

Mr. Beck. I do. 

Secretary Sherman. The national- bank law clearly provides that the 
bank notes shall be received at par by the United States itself, and 
shall be paid out for all salaries or other debts and demands owing by 
the United States to individuals, except interest on the public debt, 
and in redemption of national currency — the same provision applies to 
United States notes — and also the additional quality of being an en- 



28 

forced legal tender between private parties iu payment of private con- 
tracts. Now, as a matter of course, you ask me an ungracious question 
when you desire my comments upon a bill introduced by a member of 
the Senate, also chairman of this committee, and I do not wish to ex- 
press any opinion, because that is a matter of construction. 

Mr. Beck. The Senator who introduced the resolution himself says 
that if that resolution passes as it stands and becomes a law, the effect 
I have stated will be produced. 

Secretary Sherman, I would rather let the Senator give his own 
opinion about that. 

Mr. Beck. I understood him to say that to jou a little while ago. 
Assuming that that is the fact, would not the bank notes still remain a 
legal tender uuder that section of the law I have just read to you both 
from the government and the banks ? 

Secretary Sherman. There is no doubt about the law, so far as the 
bank note is concerned, that it is payable for all salaries and receivable 
for all dues to the United States except the exempted ones. 

Mr. Beck. And the passage of the resolution I have just read would 
not affect that law as to national-bank notes in any form ? 

Secretary Sherman. Now, I must decline to give my opinion as to 
the meaning of the bill — it puts me in a delicate position ; but if you ask 
my opinion of what ought to be done 

Mr. Beck. I am asking you about the pending resolution. Would 
there be any paper money left after that resolution was passed that the 
government could require any person to take except the national-bank 
notes, and would not the national-bank notes remain after that resolu- 
tion with all the powers they now have, and with all the rights of the 
government to require persons to take them ; would not that be the con- 
struction of the Treasury Department? 

Secretary Sherman. I think you had better leave that to others, 
because the language is plain enough. My opinion is that United States 
notes ought to have all the sanction that the government can possibly 
give to them, to-be receivable and payable for all purposes that the 
government can clearly make them receivable or make them payable for ; 
and that we ought to attempt to make a contract between individuals 
payable in United States notes when, by the general principle of law, it 
is payable in standard monev and not in promises. 

Mr. Beck. Is it your opinion that it would be good policy to allow 
the national-bank notes to continue in existence with a greater paying- 
power than United States notes ? 

Secretary Sherman. No, sir. I would give to the United States 
notes every sanction and use that could possibly be given to them with- 
out invading and trenching upon a power which it is very doubtful if 
Congress possesses ; that is, the power to make money out of a promise 
to pay money. The Parliament of England does not assume such a 
power as this for itself; and in granting authority to the Bank of Eng- 
land to issue notes it specially provides that the notes shall be a legal 
tender only as long as they are actually redeemed iu coin, as will be 
seen by the following act. 

An Act for giving to the corporation of the Governor aud Company of the Bank of 
England certain privileges for a limited period, under certain conditions, ax>proved Au- 
gust 29, 1833. 

Sec. 6. And be it further enacted, That from and after the 1st day of August, 1834, un- 
less and until Parliament shall otherwise direct, a tender of a note or notes of the Gov- 
ernor and Company of the Bank of England, expressed to be payable to bearer on de- 
mand, shall be a legal tender to the amount expressed in such note or notes, and shall 
be takeu to be valid as a tender to such amount for all sums above £5 on all occasions 



29 

on which any tender of money may he legally made, so long as the Ban!: of England shall 
continue to pay on demand their said notes in legal coin. 

Mr. Beck. You are very clear in giving us your opinion that any law 
or resolution that would leave the national-bank note with a higher pay- 
ing power or a greater capacity for usefulness than a United States 
note would not be good policy. 

Secretary Sherman. I think so. 

Mr. Beck. These laws that I have read to you you say you do not 
care to construe particularly. 

Secretary Sherman. I am willing to construe the law, but I do not 
wish to construe the meaning of a bill proposed by a Senator, and that 
Senator a member of this committee. 

Mr. Beck. Then will you be kind enough to construe the law set forth 
in section 5182 of the Revised Statutes? 

Secretary Sherman. I say that under that section 5182 the bank bills 
would be receivable at par lor all dues to the United States except 
duties on imports, and that they would also be legally payable for all 
salaries and other debts and demands owing by the United States to 
individuals. 

Mr. Beck. Now turn to another section 5196, on a succeeding page, 
and say as to the power contained in that. Would not each national 
bank in the United States be required to take the notes of every other 
national bank in payment of all debts due to the -bank ? 

Secretary Sherman. " Every national-banking association formed or 
existing under this title shall take and receive at par, for any debt or 
liability to it, any and all notes or bills issued by any lawfully organized 
national-banking association. But this provision shall not apply to any 
association organized for the purpose of issuing notes payable in gold." 

Mr. Beck. So that power would still remain should this resolution 
become a law ? 

The Chairman. This resolution has no reference whatever to bank 
notes, it has no effect upon them one way or another, and was not 
intended to have. 

Mr. Beck. Would not the bank notes then continue to have this ad- 
ditional use, supposing the resolution to become a law? 

Secretary Sherman. That is another form of asking me to construe 
a bill. I am willing to give you my construction of the law. I have 
already stated that I do not think any quality should be given to a bank 
note that is not given to United States notes as long as the latter exist. 

Mr. Beck. If a law is passed depriving the United States notes of all 
legal tender quality in the payment of debt from the United States to 
the individual or from banks or individuals, and the present United 
States banking laws remain as they are, will not the notes of the banks 
have a much higher quality than United States notes thus deprived of 
the power that they formerly had ? 

Secretary Sherman. I should say not. 

Mr. Beck. I am speaking as if that resolution should pass and be- 
come a law. 

Secretary Sherman. You ask me this question provided that became 
a law? 

Mr. Beck. Should that become a law ? 

Secretary Sherman. That is the same thing over again. I do not 
think, Mr. Senator, you ought to ask me that question, because that is 
a matter you are called upon to decide and pass upon in your sphere as 
a Senator. I would say, on the other hand, that I do not think it ought 



30 

to have any such effect. I suppose, however, Mr. Bayard would very 
frankly tell you what the intention of the resolution is. 

The Chairman. I know one thing : That banks can not compel me to 
receive their notes for debts due me, nor can any man compel me to re- 
ceive them. If the government owes me my salary, I think they could, 
perhaps, pay me in the uational-bauk notes under the existing law, but 
you cannot compel the payment of a debt between private parties with it. 

Secretary Sherman. If you will allow me, I should like to amplify a 
little on one point : I think if Congress would take up this question of 
the modification of the legal-tender note and make certain rules of evi- 
dence (which would be clearly constitutional), which good lawyers un- 
doubtedly approve, declaring that where a contract is made between 
parties upon the basis of United States notes, it shall be presumed by 
courts in the affirmance of contracts that the payment in United States 
notes shall be a sufficient compliance therewith, and that, in the absence 
of any absolute provision to tbe contrary, paper money, or promises topay 
money, shall be a legal tender in discharge of any obligation. The 
United States in repealing the legal-tender quality, which is a question 
for Congress, may by declaratory law easily avoid the constitutional 
difficulty, so that no one's rights would be disturbed. Now, the only ob- 
jection I ever heard to the repeal of the legal-tender clause is that some 
unreasonable creditor might, in order to oppress a debtor without notice, 
demand coin. The auswer to that is that it probably would never be 
done. Of course a man might do it and demand coin in this way, thus 
putting the debtor to inconvenience. 

The Chairman. Putting the creditor to iuconvenience ! Was there 
ever a period in our history when the creditor was put to so little in- 
convenience % Was there ever so much money and was it ever so cheap? 

Secretary Sherman. I have in the past collected much money for my 
clients, aud I never knew such a demand as I have referred to, to be 
made ; but still it might be made. 

Mr. Beck. Suppose I contract with a party for the purchase of cer- 
tain things, the condition being payment ou a certain day in money ; 
and suppose on that day I tender United States notes and he refuses 
them and demands coin'? 

Secretary Sherman. Suppose the coin is demanded"? How easy, if 
necessary, to send to New York and get it. 

Mr. Beck. But you are to pay on a given day, and without a minute's 
warning. 

The Chairman. There never was a time when such a demand could 
be so readily met. 

Mr. Morrill. If a man makes a tender and it is not objected to 

Mr. Kernan. But if he should object or demand payment in coin it 
becomes necessary for him to give me a reasonable time to comply with 
the demand. 

Mr. Ferry. Would it be well to fix the rights of communities upon 
a basis of prosperity % 

The Chairman. That is the time of all times to fix it, because there 
can be hardship to no man then. If you should fix it in a time of great 
distress you would undoubtedly create a great deal of hardship ; and it 
is to avoid that and to enact some law which will prevent the possibility 
of depreciation of money that this resolution is offered. 

Mr. Ferry. You are limiting the rights of individuals under a pros- 
perous condition. 

The Ciiairman. Aud it is to prevent any possibility of injury to the 



31 

interests of men that this measure should be adopted now at a time 
when nobody will suffer, and affairs will settle themselves. 

Mr. Ferry. If you fix a man's rights on a basis of resumption, when 
a time comes that resumption fails his rights are injured. 

The Chairman. The very object of the measure is to prevent that 
result in the future. It cannot hart a man to-day who is called upon 
to pay in coin, because he can get it on demand. 

Mr. Wallace. Allow me to ask you whether, under the act of 1864, 
United States notes being a lawful money, aud the owners of the capital 
stock of these national banking associations having invested their 
money upon the faith of the law as it then stood, it did not become a 
contract under which if we now take away the power of legal tender 
from the lawful money then in existence, they still have the right to pay 
their outstanding notes with United States Treasury notes, notwith- 
standing the lawful tender is taken away from them ? 

Secretary Sherman. My impression is that if you simply take away 
the legal-tender quality of United States notes you still have in full 
force the provision of the bank note, because the United States notes 
are still considered as lawful money, just as the fractional coin is lawful 
money, though it is not a legal tender for more than ten dollars. 

Mr. Wallace. The effect, then, of taking away the legal-tender qual- 
ity from United States notes would extend simply to contracts between 
private parties, and could not affect the provisions of the bauk char- 
ters » 

Secretary Sherman. I think not, because the national banking law 
expressly provides that the banks shall have the privilege of redeeming 
their notes in United States notes or coin. 

Mr. Wallace. In the u lawful money" of the United States (reading 
the words of the section). Your opinion is that that continues lawful 
money until the charter of the bank expires? 

Secretary Sherman. Yes, sir ; that is it. If you simply say, il I 
pay you $500," that means coin dollars ; but if you say, " I pay you in 
lawful money $500, or currency, or United States notes, or bank notes," 
then it would be enforced as a stipulation. In the absence, however, of 
express stipulation, it means naked money. 

Mr. Kernan. Under the bank charters these banks have a right to 
redeem in whatever was lawful money at the time of the granting of 
the charter. 

Mr. Wallace. The Secretary has answered that. 

Secretary Sherman. I think you have a right to change it, but I 
do not think the passage of the resolution would do it. 

Mr. Allison. Do you think we do not do it by that language when 
we say, " and shall not be otherwise a legal tender "<? 

Secretary Sherman. I do not say what the construction is. I say 
if you take away the legal-tender quality from United States notes, and 
nothing else, you will still have, under the provisions creating them 
lawful money, a right to treat them as lawful money, and to issue an 
execution payable in lawful money, or United States notes, because 
there is no provision in this resolution that says United States notes 
shall not- be lawful money. 

Mr. Wallace. Is it not your opinion that the national banks could 
redeem their notes in United States Treasury notes if the legal-tender 
quality were taken away % 

Secretary Sherman. Undoubtedly so. 

Mr. Wallace. And because of the fact that United States notes are 



32 

lawful money, and the words " lawful money r entered into the construc- 
tion of the banking charters ? 

Secretary Sherman. The law still says they may be redeemed in law- 
ful money. 

Mr. Ferry. If the legal-tender quality were removed, would not 
there be this condition of things : Suppose in receiving the proceeds of 
a discounted note from a national bank I take from the bank United 
States notes 

Secretary Sherman. You would not then be bound to take that cur- 
rency. 

Mr. Ferry. But I do take it, and at the maturity of the note I go to 
the bank to take the note up with the United States notes from which 
the legal tender feature has been taken away, and the bank refuse to 
take them % 

Secretary Sherman. The banks are bound to take United States 
notes and notes of other national banks. 

Mr. Ferry. Can I compel the bank to take them with this provision 
m the law "\ 

Secretary Sherman. 5Tes, sir. 

Mr. Ferry. With the legal-tender feature removed from the United 
States notes % 

Secretary Sherman. O, yes ; they are bound to take them. 

Mr. Ferry. Under what clause of the law % 

Secretary Sherman. I cannot turn to it now. 

Mr. Allison. I have before me your report of December last. It con- 
tains your views and judgment of what we ought to do in regard to the 
repeal of the legal-tender clause % 

Secretary Sherman. Yes, sir. 

Mr. Allison. You have not changed your views since that report was 
submitted. 

Secretary Sherman. No, sir; not in regard to that. I ought to say 
that I think my views are sufficiently stated in that report. 

Mr. Allison*- You say, "the Secretary therefore respectfully submits 
to Congress whether the legal-tender clause should not now be repealed 
as to all future contracts." Do I understand that to be your recom- 
mendation with reference to what we ought to do 1 ? 

Secretary Sherman. Yes ; but that is for Congress to determine. I 
think it is well enough to reserve prior contracts ; for I do not think we 
ought or want to do anything to violate existing contracts. 

Mr. Allison. Is that your recommendation? 

Secretary Sherman. Yes, sir; that is my recommendation. 

Mr. Allison. That whatever we do in reference to this clause should 
apply to future contracts'? 

Secretary Sherman. Yes, sir. 

Mr. Allison. And not to any existing contracts ! 

Secretary Sherman. I think so. 

Mr. Allison. Is not that individual opinion of yours based upon the 
idea that we, having issued these notes to public creditors — for they are 
nothing but debts of the United States— and having given to our cred- 
itors who hold these notes the option to use them in payment. of debts, 
that as long as those particular notes are outstanding they ought to be 
used in payment of debts now existing. 

Secretary Sherman. I think that is a reservation that it is always 
safe to make where you change the form of payment — a reservation as 
to existing contracts. 



33 

Mr. Allison. These notes ou their face say they are a legal tender 
for private debts. Now, do you not regard that obligation as sacred as 
the obligation which you are seeking to protect ? 

Secretary Sherman. No; I thiuk the public faith and the public 
credit is fully supported when we are ready to redeem these notes in 
coin. 

Mr. Allison. That is true while we redeem them in coin ; but you 
said awhile ago that you were not quite willing to have this provision 
in regard to payment of customs dues in notes made absolute now, be- 
cause there might come a time when we could not redeem them in coin. 
Now, I hold one of these United States notes; it is to me a debt-paying 
power. Of course, while you are redeeming these notes in coin there is 
no practical difference between the notes and coin ; but suppose you 
cease to redeem them in coin ; suppose a contingency which you pre- 
sumed would not happen in reference to the interest on the public debt 
should happen with reference to these notes, would it be a good thing — 
supposing that contingency— to take away by law a power that these 
notes in my possession now have ? Would it not be a violation of the 
public faith, as much as a violation which might be implied by a repeal 
or abrogation of the provision of the act of 1862 ? 

Secretary Sherman. I see no analogy between the two. In the first 
place, here is a stipulation, on behalf of an indebtedness that is running 
by express terms for 30 years, that you will set aside a specific fund for 
I its payment ; while on the other hand the note is payable now. Sup- 
i pose we say we are ready to pay off these notes that are in the holder's 
hands; can he have any right to complain ? Suppose we say, " If you 
do not present that note within five years we will not pay it at all." A 
statute of limitation is within the power of Congress, and is a matter of 
wise discretion. 

Mr. Allison. Here is a note that on its face says it is a legal tender 
for $5. We are redeeming these notes in coin to day. Suppose to- 
morrow we lack the ability to redeem this note in coin, it still remain- 
ing in the hands of a public creditor — because I am a public creditor, 
and the government owes me that amount; now, is there not a shade of 
violation of public faith in saying that, although I hold that note in my 
possession, having that legal-tender quality impressed upon it, that 
quality shall be taken away by law without payment of that note? 

Secretary Sherman. I. do not thiuk there is any analogy. We are 
ready to pay it now. That is simply a promise to pay so much money ; 
and, as I have suggested, we give you notice if you do not present it 
within a given time we will not pay it. 

Mr. Allison. So we are ready as regards the payment of customs 
dues to enact that they shall be paid in United States notes ; but you 
say, and I agree with you, that it it is not fair to violate, even in spirit, 
that law of 1862. Is it any more fair to violate, that law which says that 
the note in my hand is a legal tender % 

Secretary Sherman. I do not see any analogy. 

Mr. Ferry. To-day, Mr. Secretary, under resumption, you are ready 
to pay that note iu coin ; to-morrow you cease paying and cease resump- 
tion, on account of the conditiou of the country. That note is good to 
a party for $5. in payment to any one he owes, and you propose to take 
that power away from it. You say you are ready to pay ir, and he pre- 
sents it after you have ceased to resume, and you do not pay it in coin, 
while you have taken away the power which this note had of liquidat- 
ing $5 of debt for every individual. Now, is not that a violation of 
faith ! 

3 SH 



34 

Secretary Sherman, It would be a violation of public credit and faith 
to refuse to redeem our United States notes after the resumption act had 
gone into operation, and I do not wish to admit that we will do that. 

Mr. Ferry. You said there might be a condition of war, when you 
might be no longer ready to redeem. I cite that condition, and you say 
you are unable to pay that note, but you still propose to take away the 
legal-tender feature of it, and to take away the power it has of paying 
debt. 

Mr. Allison. The act of June 20, 1874, provides in specific terms that 
when national-bank notes are presented at the Treasury for redemption, 
you can redeem them in United States notes. 

Secretary Sherman. Yes, sir. 

Mr. Allison. It provides that such association shall, upon notifica- 
tion, deposit United States notes equal to the amount of its notes so re- 
deemed. 

Secretary Sherman. We do that every day unless we can get them 
to take coin. 

Mr. Allison. But would you consider it, after the passage of this 
law — 1 am sorry you cannot construe that law which provides that each 
bank shall keep a deposit in the Treasury of the United States in law- 
ful money of the United State? — a compliance with this law for a na- 
tional bank to seud you United States notes ? 

Secretary Sherman. I do not see auy thing in this law, and I do not 
think there is anything in the bill, that would prevent it from being con- 
sidered as lawful money ; but I say I do not propose myself, and I do 
not think there is anything in Senator Bayard's bill, that would change 
that feature. 

The Chairman. That is a question of construction. I have never 
questioned the power of the government to emit bills of credit, but I 
claim that those bills of credit cannot be made money when they are but 
the evidence of money borrowed. 

Mr. Allison. I want to get at the operation of this banking law if 
you should pass the pending resolution. Now, the law provides that 
national banks shall redeem their notes at the Treasury, and in order 
to do that they "shall keep and have on deposit in the Treasury of the 
United States, in lawful money of the United States, a sum equal to five 
per centum of its circulation"; would you understand it to be a sufficient 
compliance with this law to deposit United States notes to the extent of 
five per cent, after the passu ge of this law? 

Secretary Sherman. I do not construe this proposed law, but after 
the repeal of the legal-tender clause these notes would still be lawful 
money — lawfully issued and called money; but a promise to pay that 
money as between private parties the courts would undoubtedly require 
to be in specific terms. I do not want to enter into the controversy 
whether a United States note deprived of this legal-tender quality is 
what is called lawful money. It is claimed that unless you repeal that 
provision which makes it lawful money it still continues to be such. 

Mr. Allison. As I understand you, then, without construing Mr. 
Bayard's proposed law, in any arrangement you would still provide that 
these United States notes might be deposited by national banks, and 
that the government might redeem the bank notes in United States 
notes? 

Secretary Sherman. I would not say anything about that ; that is a 
grave question. After the repeal of the legal-tender clause the notes 
would, as I understand it, still stand as lawful money, and wherever in a 



35 

contract lawful money is prescribed they would be considered lawful 
money — that is, money lawfully issued. 

Mr. Allison. This would be a very grave question, as you see, as to 
what could be done with bank notes. We have provided a mode of re- 
deeming them. Would a deposit by a bank of United States notes be 
a substantial compliance with the law, or ought it to be considered a 
substantial compliance 1 ? 

Secretary Sherman. I think so. 

Mr. Allison. Then of course the government, if that is a substantial 
compliance, would redeem its promises by also paying out United States 
notes"? 

Secretary Sherman. I thiuk so. I think that under the law United 
States notes ought to be received and paid tfut precisely as they are 
now. jSTo difference in that regard should be made except that the 
United States should not attempt to make these promises to pay, actual 
money as between private parties. 

Mr. Ferry. Then they would be simply lawful paper instead of law- 
ful money ? 

Secretary Sherman. They would be lawful money. 

Mr. Beck. In the act of June 20, 1874, when speaking of the five 
per cent, that shall be held in the Treasury for redemption, this language 
is used : 

That every association * * * shall at all times keep and have on deposit in the 
Treasury of the Uuited States, in the lawful money of the United States, a sum equal 
to five per centum of its circulation, to be held and used for the redemption of -such 
circulation. 

You think you would still have the right under that law to do that 
after the legal-tender clause was taken away 1 

Secretary Sherman. Undoubtedly they would still be United States 
notes. 

Mr. Beck. I ask you, then, if when these notes are so deposited the 
United States has any power to pay them out; and, I speak of power, 
how can they ever be reissued again under the law of May, 1868, if the 
United States has no power to make them a legal tender for anything ? 

Secretary Sherman. But they can be reissued. We could say what 
we would receive them for, and we could pay our public officers with 
them as before stated. That is the law now. 

Mr. Beck. Suppose we pass a law 

Secretary Sherman. You do not want me to construe that. 

Mr. Beck. Suppose we had passed a law saying that they shall not 
be otherwise legal tender, would we have any power to reissue them 1 

Secretary Sherman. I do not desire to construe a pending measure. 

Mr. Beck. As soon as we destroy the legal-tender quality can we do 
any more than receive them at the Treasury ? Suppose I had $10,000 
of them on the day before the passage of the act, and I have made a 
contract to buy my neighbor's farm and to pay him on a certain day in 
legal-tender notes as I have a right, and I take them to him on that 
day after the passage of the act when they are no longer a legal 
tender I 

Secretary Sherman. The contract having been made ? 

Mr. Beck. The contract having been made and the medium of pay- 
ment fixed, would you regard it as a matter of good faith on the part 
of the government to thus put me in a condition where 1 would be at 
the mercy of the other party i 

Secretary Sherman. If the contract had been made before the pass- 



36 

age of tbe act, then -the act should not apply, for I would not recom- 
mend the passage of any act whi^h applied to pre existing contracts. 

The Chairman. Would you not give him an equivalent lor gold or 
silver if you offered to pay him in the notes H 

Secretary Sherman. If the tender was made and declined, the courts 
have held over and over again that a reasonable time is to be allowed for 
the party to get the coin, and the courts have also held that a mere 
refusal to accept current money as a legal tender should not be made 
the means of depriving a man of his rights under the contract, if in a 
reasonable time he complies with it. 

Mr. Beck. Would that hold where the contract was specific as to the 
time and the medium of payment. 

The Chairman. Thafr would be rather a difficult question for the court 
to decide. 

Mr. Allison. In my State we make time the essence of the agree- 
ment, and if the contract is to do a certain thing on a certain dayl 
must do it on that day. 

The Chairman. There is no escaping the fact that there never was a 
time since this was a government when it was so easy to pay in specie 
as it is to-day. 

Mr. Allison. Tbat is the truth, and it is a fact. 

The Chairman. The methods of adjusting balances were never so 
perfect; there never was by one-half as large a volume of silver and 
gold in the country as to-day, and therefore every one of these objec- 
tions based upon the inability to pay in coin was never so improbable 
as now. 

Mr. Allison. Laws are made for changing conditions. . 

Tbe Chairman. I know they are, and that is the reason why we 
should take the present time in which to change this law. 

The next subject is — 

COST OF REFUNDING. 

The Chairman. "What has been the cost of converting the interest- 
bearing debt, as it stood July 14, 1870, to what it is now, including 
double interest, commissions, traveling expenses of agents, &c, and 
the use of public money by banks, and the value of its use, so as to de- 
termine whether the system should be continued or changed?" 

Mr. Beck. I would say to the Secretary, if you will allow me now, 
that I ma.y desire, after looking over the statement that he makes, to 
ask some questions which I am not quite prepared to ask now. 

Secretary Sherman. I would rather give you these official statements 
and let you look them over for yourself, and ask me such questions as 
you may think necessary. 

Referring to the expenses for refunding, the law appropriated one-half 
of one per cent, to cover all forms of expenditure. Under the refunding 
operations $500,000,000 of five per cent, bonds were sold by my predeces- 
sors, in which they contracted to pay to the syndicate or other parties 
who sold the bonds one-half of one per cent., the contracting parties to 
pay all the expenses of the loan out of that commission. The result was 
that on the $500,000,000 of five per cent, bonds the amount paid for ex- 
penses was $2,500,000. 

Mr. Beck. That was under whose administration? 

Secretary Sherman. That was under the administration of Secre- 
taries Boutwell, Richardson, and Bristow, and the same provision existed 
in the contract made by Secretary Morrill for the sale of $300,000,000 



4J per cents; which contract was in force when I took charge of the 
Treasury. 

Mr. Beck. That was the contract in relation to four-and a half per 
cents ? 

Secretary Sherman. Yes, sir; he allowed the syndicate one-half of one 
per cent,, they to pay all the expenses, including hire of clerical force and 
incidental expenses of every kind. The amount of bonds placed under 
that contract for refunding was $183,000,000, on which the commission 
amounted to $025,000. 

When I assumed the office of Secretary of the Treasury, and after this 
contract was closed, 1 adopted a different policy. In selling four per 
cent, bonds I assumed the payment of all expenses. I thought that the 
transactions being so large I could save something out of the one-half 
per cent, allowed by law, and I did in the summer of 1877, in selling the 
four per cent, bonds, save something, although not much. After that, 
when the syndicates were abandoned — the public at large do not seem 
to know that after 1877 there were no syndicates at all, except for re- 
sumption purposes and the foreign contract of January, 1872 — all bonds 
were sold upon public advertisements, copies of which I have here. We 
sold $740,845,950, including the bonds sold for resumption purposes, 
and the whole expense of placing that amount to date is $2,501,922.26. 
The one-half per cent, provided for by law amounted to $3,704,220.75, 
thus leaving a balance unexpended of the one-half per cent, commission 
of $1,112,307.40. 
Mr. Allison. You say that after 1877 there were no syndicates? 
Secretary Sherman. No syndicates except for the loan sold in Europe 
and for resumption purposes. 

Mr. Allison. And most of this $700,000,000 of four per cents which 
were placed was without the intervention of the syndicate 8 / 

Secretary Sherman. All except about $15,000,000, which were sold 
abroad in Loudon ; and I have brought two circulars here uuder which 
this was done. This method was adopted, as the correspondence shows, 
only after careful consideration, and some serious doubts as to whether 
we could manage the machinery of the national banks to do it without 
the aid of a syndicate; but I ventured to try it on the 18rh January, 
1878. Here is the first circular issued by me after the syndicate con- 
tracts ended : 

Treasury Department, 
Washington, D. C, January 16, 1878. 

The Secretary of the Treasury hereby gives notice that, from the 26th instant, and 
until further notice, he will receive subscriptions for the four per cent, funded loan of 
the Uuited States, in denominations as stated below, at par and accrued interest, in 
coin. 

The bonds are redeemable July 1, 1907, and bear interest, payable quarterly, on the 
first day of January, April, July, and October of each year, and are exempt from the 
payment of taxes or duties to the United States, as well as from taxation in any form 
by or under State, municipal, or local authority. 

The subscriptions may be made for coupon bonds of $50, $100, $500, and $1,0G0, and 
for registered bonds of $50, $100, $500, $1,000, $5,000, and $10,000. 

Two per ceDt. of the purchase money must accompany the subscription ; the re- 
mainder may be paid at the pleasure of the purchaser, either at time of subscription 
or within thirty days thereafter, with interest on the amount of the subscription, a5 
the rate of four per cent, per annum, to date of payment. 

Upon the receipt of full payment, the bonds will be transmitted, free of charge to 
the subscribers, and a commission of one- fourth of one per cent, will be allowed upon 
the amount of subscriptions, but no commission will be paid upon any single subscrip- 
tion less than $1,000. 

Forms of application will be furnished by the Treasurer at Washington, the assist- 
ant treasurers at Baltimore, Boston, Chicago, Cincinnati, New Orleans, New York, 
Philadelphia, Saint Louis, and San Francisco, and by the national banks and bankers 



38 

generally. The applications must specify the amonnt and denominations required, 
and, for registered bonds, the full name and post-office address of the person to whom 
the 'bonds shall be made payable. 

The interest on the registered bonds will be paid by check, issued by the Treasurer 
of the United States, to the order of the holder, and mailed to his address. The check 
is payable on presentation, properly indorsed, at the office of the Treasurer and assist- 
ant treasurers of the United States. 

Payments for the bonds may be made in coin to the Treasurer of the United States 
at Washington, or assistant treasurers at Baltimore, Boston, Chicago, Cincinnati, New 
Orleans, New York, Philadelphia, Saint Louis, and San Francisco. 

To promote the convenience of subscribers, the department will also receive, in lieu 
of coin, called bonds of the United States, coupons past due or maturing within thirty 
days, or gold certificates issued under the act of March 3, 1863, and national banks will 
be designated as depositaries under the provisions of section 5153, Revised Statutes of 
the United States, to receive deposits on account of this loan, under regulations to be 
hereafter prescribed. 

JOHN SHERMAN, 

Secretary of the Treasury. 

That circular proposed that all the banks should become public de-- 
positaries; and under its provisions, 148 of them (which is but a small' 
portion of the number of banks, there being over 2,000) came into the 
scheme from time to time, although all were invited and were offered 
the same commission of one-fourth of one per cent, upon the amount 
subscribed, no commission, however, to be paid on a subscription of 
less than $1,000. That proposition continued during that year, and 
under it we sold about $125,000,000. 

The Chairman. Did that one-fourth per cent, include the expenses ? 

Secretary Sherman. No ; we paid the expenses ourselves, and we 
allowed subscribers a commission of one-fourth per cent., paying the 
expenses out of the remaining quarter and thus saving considerable. 

We did not change that order, I think, in any particular. 

The Chairman. What portion of that remaining quarter per cent, 
did you expend in expenses % 

Secretary Sherman. As nearly as I can tell, about one-half during 
the first of that year. 

The Chairman. That made the total expense § per cent. % 

Secretary Sherman. Three-eighths per cent. But after that we saved 
a good deal more because we reduced the commission. 

And then on January 1, 1879, I issued another circular, of which 
this is a copy : 

18 79. Treasury Department, 

Department No. 3. SECRETARY'S OFFICE, 

Secretary's office. Washington, D. C, January 1, 1879. 

The Secretary of the Treasury calls attention to the four per cent, funded Loan of 
the United States now offered by this department in denominations, viz : ry>r coupon 
bonds of $50, $100, $500, and $1,000, and for registered bonds of $50, $100, $5i)0, .$1,000, 
$5,000, and $10,000, at par and accrued interest to date of subscription, in coin. 

The bonds are redeemable July 1, 1907, and bear interest, payable quarterly, on the 
first day of January, April, July, and October of each year, and are exempt from the 
payment of taxes or duties to the United States, as well as from taxation in any form 
by or under State, municipal, or local authority. 

Upon the receipt of full payment, the bonds will be transmitted, free of charge, to 
the subscribers. 

Applications should specify the amonnt and denominations required, and, for regis- 
tered bonds, the full name and post-office address of the person to whom the bonds 
shall be made payable. 

The interest on the registered bonds will be paid by check, issued by the Treasurer 
of the United States, to the order of the holder, and mailed to his address. The check 
is payable on presentation, properly indorsed, at the office of the assistant treasurer 
of the United States in New York, in coin or United States notes, as the holder may 
prefer, or, if desired, in United States notes at the office of the Treasurer or any assist- 
ant treasurer of the United States. 



All national banks are again iuvited to become financial agents of tbe government 
and depositaries of public moneys received on tbe sale of these bonds, upon complying 
with Section 5153, Revised Statutes of tbe United States. All banks, bankers, post- 
masters, and otber public officers, and all otber persons, are invited to aid in placing 
tbese bonds. Tbey can make tbeir arrangements through national banks for the de- 
posit of the purcbase-money of the bonds. 

The money received by depositary banks on accouut of subscriptions will remain on 
deposit with said banks, but subject to the order of the Treasurer of the United States, 
and calls for the redemption of six per cent, bonds will issue from time to time as the 
Secretary may direct. 

Payments may be made to the Treasurer of the United Siates at "Washington, or as- 
sistant treasurers at Baltimore, Boston, Chicago, Cincinnati, New Orleans, New York, 
Philadelphia, Saint Louis, and San Francisco, in coin, matured coupons, coin certificates, 
or United States notes. 

The Secretary of the Treasury will also accept in payment called bonds, certificates 
of deposit of national bauks specially designated to receive deposits on this account, 
but the bonds will not be delivered until the certificate has been paid for by a Treasury 
draft, or by a deposit of a like amount of coin with the Treasurer or some assistant 
treasuter of the United States, or until other United States bonds of equal amount are 
substituted in their stead. 

The Treasurer of the United States will also accept, in payment, United States cou- 
pons maturing within thirty days, or drafts in favor of himself drawn on New York, 
which will be collected and tbe excess, if any, returned by check to the depositor. 

Commissions will be allowed on subscriptions for said bonds only, as follows: 

On an aggregate of subscriptions of $100,000, and not exceeding $1,000,000, between 
January 1, 1879, and June 30, 1879, one-eighth of one per cent. On an aggregate of 
subscriptions exceeding $1,000,000, and not exceeding $10,000,000, between the same 
dates, one-quarter of one per cent., and on amounts in excess of $10,000,000 an addi- 
tional commission of one-tenth of one per cent. 

All blanks, or forms, or information needed, will be furnished by the department 
without cost. 

This circular is in lieu of all others previously issued in relation to subscriptions for 
four per cent, bonds, consols of 1907. 

JOHN SHERMAN, 

Secretary. 

Iu this I reduced the commission and made it a graded one; one- 
eighth of one per cent, on all under $1,000,000, and one-fourth of one per 
cent, on all over $1,000,000 and not exceediug $10,000,000, with an addi- 
tional one-tenth of one per cent, for all over $10,000,000. My object 
was to get strong competition between the great banks that were then 
competing, but finding it did not work very well, and there was com- 
plaint made by banks, I soon changed that by allowing a commission of 
oueeighth all around, and under that circular the great saving was made. 
We saved of course under the other, because a large portion of the sub- 
scriptions were taken for one eighth commission, and some for one-fourth. 

The commissions that were paid have all been reported to Congress, 
and printed in a public document in reply to a resolution of Mr. Sauls- 
bury. (Senate Doc. No. 9, 1st session 46th Cong.) The amouut paid to 
every person is published, except those that have been paid since that 
publication, which latter payments are contained in the paper you have 
before you, giving the commissions paid to each person. (House Ex. 
Doc. No. 9, 2nd session 46th Congress.) 

A great deal of criticism has been made in the public press, and I 
think you have referred to it in your speech [addressing Mr. Beck], 
about the commissions earned, or the large profits made by the First 
National Bank of New York. I desire to say here that no favor of any 
kind was ever granted to that bank or any other bank, so far as I know, 
and I have had the whole matter searched from beginning to end. 

The First National had no account with us, except the same that all 
other depositary banks have. We never deposited any money with it, 
and these banks engaged in the refunding operations, were not deposi- 
taries in the sense of having money placed in their hands by the govern- 



40 

merit. The whole deposits with them were on account of sales, that 
tbey or anybody through them made, because thousands of people did 
business through them. They were to send us a certificate of these 
deposits which would be secured by bonds through the Treasurer, and 
then at the end of the ninety days we would call the money in for the 
payment of called bonds. The money was left there for ninety days, 
and through those transactions enormous sums appear, represented by 
their certificates, and by actual bonds deposited with the assistant treas- 
urer in New York. 

The Chairman. These bonds were deposited as security? 

Secretary Sherman. Deposited as security. 

The Chairman. They were their own bonds? 

Secretary Sherman. They were government bonds. 

The Chairman. But they owned the government bonds ? 

Secretary Sherman. Yes, sir ; they or their correspondents. 

Mr. Beck. And were drawing the interest upon them all the time, of 
course ? 

Secretary Sherman. Here is a table showing the sales and commis- 
sions of certain banks. I have taken all banks who sold over $1,000,000. 
There were twenty-six of them. This First National Bank, having been 
always connected with the national securities and having been the 
agent of the syndicate, continued to be the agent of the foreign syn- 
dicate, and continued to have altogether the largest business. They 
sold of the four per cent, bonds $262,G25,000. The sales of the other 
banks are kept here in the same way. The Bank of New York (Na- 
tional Banking Association), I think, was the next. It sold $57,259,500. 
The National Bank of Commerce sold $51,684,000; the National Bank 
of the State of New York sold $46,015,000, aud so on down. 



41 



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42 

At one time there was a great competition between these large banks 
for the additional commission. When a bank fell a little short of subscrib- 
ing the $10,000,000, it complained bitterly of not getting the extra commis- 
sion, and these complaints caused me to make a uniform commission of 
one-fourth per cent. 

The total amount sold to the above banks was $552,929,100, and the 
amount of commissions paid to each as stated in this paper. The commis- 
sions paid to the First National Bank were $582,812. The largest subscrip- 
tion made by that bank was made at the end, they getting $121,000,000 
of the last sale; but that was through a combination of nearly all the 
banks and bankers of New York. 

Mr. Allison. It was made in their name ? 

Secretary Sherman. It was made in their name. 

Mr. Beck. I suppose that was the meaning of the entry made on their 
return of the profit and loss. 

Secretary Sherman. That, no doubt, was all it meant, but they made 
a profit besides this commission, because they made a profit on double 
interest. That, however, was a matter over which we had no control, 
because every subscriber selected his bank of deposit. I deem it a 
matter of considerable credit that we saved over one million dollars in 
the sale of four per cent, bonds. 

The Chairman. What expenses were there besides that one-fourth 
per cent, commission? 

Secretary Sherman. The expenses were for printing and engraving, 
transporting the bonds, clerical hire ; but the whole, iucluding the com- 
mission, came to less than f per cent. We had a very large force em- 
ployed during the busiest portion of the funding operation. 

The Chairman. The commissions were not quite one-fourth per cent, 
and the other expenses about one-eighth ? 

Secretary Sherman. Yes, sir. 

Mr. Ferry. Then you saved about one eighth per cent? 

Secretary Sherman. We saved considerably more than one eighth 
per cent. 

Now, in regardto double interest, the best statement made about that 
that can be made and in the fewest words was by Secretary Boutwell 
in his report of 1871: 

By the act establishing the national-banking system the Secretary of the Treasury 
was authorized to make the m depositaries of any public money, except receipts from 
customs, and the act authorizing the refunding of the national debt directed the Sec- 
retary of the Treasury to gi ve three months' notice of the payment of any bonds which, 
in such notice, might be speciiied and called for payment. In the same act it was pro- 
vided that the money received for the new bonds should be used only in payment of 
bonds outstanding, known as five-twenty bonds. The statute proceeded upon the idea 
that the holders of five-twenty bonds should receive three mouths' interest upon their 
bonds after notice should be given by the government. 

As this notice could be given safely only upon subscriptions already made or secured, 
the general necessary result, even in case the money were paid into and held in the 
Treasury of the United States, would be a loss of interest for three months. 

When this report was made to Congress, this committee, of which I 
was a member, and also the committee of the House more at length, ex- 
amined into the whole matter. 

Mr. Beck. Do you refer to the time when a committee of the House 
examined Mr. Boutwell and Jay Cooke? 

Secretary Sherman. Yes; and Mr. Dawes made the report. 

Mr. Beck. We have documents touching upon that. We examined 
Mr. Patterson and William Butler Duncan, and publisbed a report. 

Secretary Sherman. Yes, sir. 

Mr. Beck. As to the length of time ? 



43 

Secretary Sherman. We could see no way to avoid paying that 
double interest. I was here, and you and Mr. Bayard were here ex- 
pecting to shorten the call, and as the process of refunding was then 
very slow, and the people could not tell when their bonds were called, 
and were not likely to see the notice, it was thought to be pretty hard 
to shorten it. We did not contemplate then the enormous transactions 
that were to come in the then future, or we should have shortened the 
call. 

That was the law when I came into the Treasury, and in order to avoid 
the payment of this double interest I frequently anticipated calls and 
devised every way I could to avoid its payment. It is utterly imprac- 
ticable for us to say exactly how much this double interest amounts to. 
It could not in any case exceed one per cent. 

Mr. Beck. O yes. 

Secretary Sherman. I should say it could not exceed in any case one 
per cent, on the four per cent. loan. On the five per cent, loan it might 
be 1£. Up to the time I came in it was the general rule to exhaust 
the commission of £ per cent, allowed by law, and also the ninety 
days' double interest. Mr. Bristow, however, in a sale of $45,000,000 
5 per cent, bonds advanced the price sufficiently to cover the interest, 
just as I did in selling the 4£ per cents, for resumption purposes, and 
also in selling the last four per cent, bonds. 

As before stated, I adopted the plan of making the calls in advance 
of subscriptions, and running the risk of selling the new bonds. I would 
make a call for ten, twenty, or thirty millions in advance of subscriptions. 
It was a little hazardous, and at the close of the year I was caught with 
about $15,000,000 ahead of actual sales. But in this way, by calling 
in advance, we saved, as nearly as we can tell, about one-third of the 
double interest. Mr. Upton, chief clerk of the Treasury Department, 
has made a careful estimate, and thinks that it will amount to about 
three-fourths of one per cent. ; but it is practically impossible to state 
the precise amount. 

Mr. Allison. Which would make your average call sixty instead of 
ninety days"? 

Secretary Sherman. Yes. Another thing, when the flood of refunding 
came, as it did in April, I made a call equal to the whole amount of re- 
funding certificates, in advance, although some of the certificates were 
not sold until June, and in that way we saved a great deal more ; but, 
as nearly as we can get at it, the amount of double interest paid has 
been about three fourths of one per cent. » 

Mr. Beck. There are two matters that I wanted to understand, which, 
perhaps, you can get at more fully hereafter. First, in what way can 
we safely change the law as to the length of notice on called bonds. I 
think the Secretary has once or twice recommended the reduction of 
the time, and I very much desire to know how far we can pursue the 
policy in the refunding yet to take place, that he carried out in April 
with regard to these certificates, so as to make it a more popular loan. 

Secretary Sherman. Any refunding bill that is passed by Congress 
ought to make some provision for the issue of these ten dollar certificates. 
If I had been allowed, under the law, to advance the price of those cer- 
tificates as I advanced the price of the bonds I could have placed 
them among the people; but I could not do that; the law expressly au- 
thorized that any person by depositing lawful money could obtain these 
certificates, thus compelling their sale at par. As to the double in- 
terest which is to be paid in refunding bonds issued under the refunding 
act, the refunding act itself requires a notice of ninety days. 



44 

Mr. Morrill. The law under which the five per cents were issued 
required that before they could be paid off by the process of refunding 
you must give ninety days' notice. 

Mr. Allison. Tbat is the law of 1870. 

Secretary Sherman. Consequently, as to the fives, yon cannot make 
any change in that particular, as that seems to be a part of the con- 
tract. We could do it by calling in advance; but that must remain a 
purely discretionary matter with the Secretary, as you cannot make any 
rule about it. 

Mr. Allison. That is, you must issue a call in advance of having the 
money actually in the Treasury to pay for the bonds ? 

Secretary Sherman. Yes, sir. Suppose you see your sales running 
along at the rate of twenty or thirty millions a month, you could very 
easily call the bonds two months in advance. In 1877, by this method 
of calling in advance, I was twenty millions ahead at one time. 

Mr. Beck. The persons who are holding these five per cent, bonds 
that were issued under the act of 1870 have a right to ninety days' 
notice. 

Secretary Sherman. Yes ; for all that have been issued under that 
act. As to the three hundred million of sixes, there is no right of that 
kind at all, and we can pay them when they are due or at our pleasure. 
The time fixed for paying them is July, 1881, if we are ready to do so. 

You asked about the value of the moneys held at the banks in connec- 
tion with the refunding operation. That is a matter purely of conject- 
ure. The banks themselves hare claimed that the mouey was not worth 
to them over two per cent, a year; but that would depend entirely upon 
the state of the money market. They claimed that they could not use 
the mouey to any advantage, because the time they were allowed to 
retain it was so short. I could not, however, give you any opinion on 
that, although any banker can tell you about it and about what money 
was worth to them at that time. It must have been worth a good deal 
if the report of profits of banks as stated by you is true. 

The Chairman. They might have made those profits by commission. 

Mr. Morrill. They made it on the subsequent rise in bonds. 

Mr. Beck. I do not profess to know what their profits were, but they 
seemed to be very large. 

The Chairman. They were immense; they did not make it out of 
the government, but out of the people. 

Mr. Morrill. I owned the whole often shares in the Maverick Na- 
tional Bank of Boston, and when I was there last fall they were loaded 
down with five or ten millions of bonds, and were at their wit's end to 
dispose of them. The bonds were selling some days for one-eighth less 
than they cost the bank. That is a small bank with a tremendous load 
of deposits. It has secured the popular reputation of being a well man- 
aged bank, and as a consequence did an immense amount in deposits; 
but the managers were in great distress to know what to do with those 
five or ten millions of bonds that they had on their hands, and they were 
buying as often as selling in order to keep up the price. 

SINKING-FUND. 

Secretary Sherman. I was asked about a sinking-fund, and in reply 
I will state as follows : 

It is the same old question that has been so often debated. 

As to the necessity tor a sinking-fund and how it is mauaged, I have 
only to say that a sinking-fund is nothing more nor less than a name for 



45 

tbe surplus revenues of the government, and a govern meut without a 
surplus revenue cannot possibly have a sinking-fund. There is no way 
in the world to pay a debt except by having an income above your ex- 
penditures, and you can call your surplus revenues a sinking-fund if 
you choose to do so. 

Under existing law the department is required to purchase one per 
cent, of the entire debt of the United States each fiscal year, and to set 
the amount ajiart as a sinking-fund, and to compute interest thereon to 
be added with the amount to be subsequently purchased each year. This 
act can only be construed as an authority to purchase the debt in case 
of surplus revenue for the purpose. Whatever binding force it may 
have npon Congress to provide revenues sufficient to meet its demands 
is not for me to say. 

There is no particular necessity for this law; any law which pro- 
vides for and requires the application of* surplus revenues to the reduc- 
tion of the debt would do as well ; but if the debt can be decreased at 
the rate which this act requires, it would be extinguished in about thirty 
years, and if Congress will provide the surplus revenue which will be re- 
quired to comply with the law, it will be extinguished wheher it is called 
a sinking fund or not. For the next year I have estimated the amount 
to be appropriated for the sinking fund, and it is to be hoped that the 
appropriations for general purposes will be kept down to such an extent 
that there will be sufficient surplus revenue to meet it. 

I think we will have enough to cover the sinking fund for this year at 
the end of the fiscal year. 

The Chairman. Do you not anticipate during the next six months an 
enormous importation J ? 

Secretary Sheeman. It is coming now ; but then our exportations 
are increasing also. 

The Chairman. I am only speaking of that fact in its connection with 
the question of revenue. Do you not think the exaltation of prices in 
this country and the depression that has been going on in Europe and 
is still continuing will necessarily send large quantities of European 
goods to this country ? 
Secretary Sherman. It looks like it now. 

Mr. Kernan. I see that during the eleven months up to last Novem- 
ber our exportations have increased over the corresponding months for 
the preceding year $50,000,000. 

Secretary Sherman. I think our surplus revenue for the first six 
mouths was taken up in payment of back pensions ; but the revenue for 
the succeeding six months will be sufficient 10 meet the sinking fund, 
amounting to about $40,000,000. 

Mr. Beck. I was thinking that the Secretary might desire to make 
his statements generally to-day and get them printed. I propose to 
inquire pretty carefully before we get through with this interview con- 
cerning the immense reduction of the public debt which has been made, 
of over $700,000,000, from the highest point down to the present, so that 
we may be governed in the future taxation by actual requirements of 
the public service. And I desire further to ascertain whether or not we 
have so far complied with the sinking-fund provision by the reduction 
of the debt, as shown in the reports of the different Secretaries, as to 
make it possible to dispense altogether with that fund, or, as the Secre- 
tary expresses it, the use of surplus revenue, in this manner. I believe 
that after the Secretary has made his general statements upon all these 
subjects, we could examine them carefully and continue the interview 
at some future day. 



46 

BONDS FOR REFUNDING. 

Secretary Sherman. In reply to the general propositions submitted 
to me by the chairman as to the advantages of the different forms of 
loans, I beg to submit the following as my views : 

1. The four per cent, is already a very popular bond both in Europe 
and in this country, and is largely used in paying balances between bank- 
ers and between countries, as well as for trust-fund and savings-insti- 
tution investment. 

2. Experience indicates that the rate of interest is as low as it can be 
if the bonds are to be kept at par. A statement of the issues of all the 
loans since the organization of the government is published in the finan- 
cial report of 1876. From that statement it will be seen that the gov- 
ernment has never been able to place a bond at as low a rate as four per 
cent, (until the recent operation), and in only a few instances as low as 
4J per cent., and then for comparatively small amounts. I present here a 
table showing at what rate to investors the principal loaus of the 
United States have been placed, excluding the loans of the late rebel- 
lion not sold for coin : 



47 



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48 

There is always a distinction to be made between the rate at which a 
loan can be sold in the- market and the market rate of the bonds after 
the loan is placed. 

The distribution of a loan among small and permanent investors even 
under the most favorable circumstances is never done without more or less 
help from capital, and that capital must be paid for making this distri- 
bution. Besides as long as loans are being sold in the market the supply 
can always equal the demand. Subsequent and uuforseen events may 
make that loan desirable for some specific purpose and raise the price 
of it considerably above that for which it was sold, and that without 
any fault or lack of foresight on the part of the government selling the 
loan. In 1871 and 1872 France sold 5 per cent, bonds for 82 per cent, 
of their face value. The same bonds are now worth 114. I think it is 
safe to say that the government has at all times obtained the best price 
possible for the loans placed upon the market. 

§o long as the 4 per cent, bond was beiug sold it was with difficulty 
kept at par or within 1 per cent, of it. It fell at one time to 98 per 
cent., less than a year ago, and the associated bankers of London asked 
for an extension of time in which they were to make another subscrip- 
tion, giving as a reason that the bond was below par, and that they 
could not take it under the terms of their contract without loss. As 
soon, however, as all the 4 per cents were taken, and it was well under- 
stood that no more could be issued for refunding, for several years, the 
price began to advance and has reached at the present time about 4 
per cent, above par. It could hardly be expected, however, that should 
additional amounts be placed upon the market that any such premium 
as this would be maintained. 

Should the exchange of 4 per cents, for the 5s and 6s of 1881 be 
authorized as desired, the government would undoubtedly be able to 
exchange a large portion, if not the entire amount, of the outstanding 
fives and sixes without using depositary banks or syndicates to aid in 
the transaction, and without the payment of any double interest, the 
market value of the 4 per cents being so high that holders of sixes 
would be glad to exchange bond for bond; and the government cannot 
reasonably expect to make much better terms than these. 

It is noticeable that there is not today a 3 per cent, or 3i per cent, 
bond of any government which sells for par. Within the last century, 
the English 3 per cent, cousols have sold as low as $47.20 for $100, 
yielding to the investor nearly 6£ per cent interest. 

The rate of 4 per cent, per annum is probably the most convenient 
rate in the calculation of interest that can be established. On $100 
the interest is even $4 a year. On each quarter year it is $1; and in 
days it is about 10 cents for 9 days. For a $50 bond it is, of course, one- 
half, the rates for $10D. For numbers larger than $L00 it will be a 
multiple of that rate, thus keeping the payments in. even dollars, as far 
as practicable. 

A 3.65 bond gives an odd number of cents for the year, and whether 
multiplied or divided, it still continues to give odd and fractional cents 
lor the periods for which calculations must be made. 

Of course this would have no special bearing where it is only a ques- 
tion whether you pay 3.65 or 4 per cent, interest, but it must be borne 
in mind that if a 4 per cent, bond is issued, the premium which can be 
obtained therefrom will determine the rate of interest realized by invest- 
ors ; and the amount which the government would in the end be com- 
pelled to pay for the loan will be substantially the same whether it is a 
3.65 or a 4 per cent. bond. 



49 

Again, we have 8740,000,000 of 4 per cent, bonds out. Owing to the 
large amount outstanding the loan is necessarily distributed over a wide 
extent of country, and among a great mauj- people, being a continual 
advertisement of itself, and really giving 1 it a larger value than it would 
have if it were but little known ; and if a 3.65 bond, or a bond bearing 
any other rate of interest is thrown on the market, the government will 
probably not be able to sell it as advantageously as it could the 4s which 
are now so widely known. 

In my opinion there would not be, in placing a 3.65 loan, any opposi- 
tion from bankers, for it is a well-known fact that, the greater variety 
of loans there are in the market the more money bankers can make 
through brokerage by exchanges of investments, as one class of bonds 
or another appear to offer better inducements as an investment. Thus 
the only persons likely to profit from placing any new description of 
loans in the market will be the bankers, brokers, and parties through 
whom the exchanges of bonds in the market are made. 

It is important that the issue of the 4 per cents, or whatever bonds 
are to be authorized, should be commenced at once. On a sale of 4s we 
now realize a sufficient premium to pay the extra interest on the 5 
and 6 per cent, bonds, thus enabling the government to exchange them 
bond for bond. In this way we shall take advantage of a present and 
certain condition of things to reduce, perhaps, $750,000,000 of the in- 
debtedness from 6 and 5 per cent, to 4 per cent, per annum. 

Authority to issue the 4s would make refunding a certainty from the 
start, which, I believe, would not be the case if any other bond should 
be authorized; and with authority to issue 4s the possibility of being 
forced to pay a higher rate after 1881 can be avoided. 

While we cannot foresee the future, it is not believed by any one that 
a lower rate of interest is likely to prevail next year or the year after 
than now exists. On the other hand there is great danger that the rate 
of interest in this country may advance. New railroads, buildings, and 
business enterprises of all kinds are being pushed, and they all require 
capital; and with the present resources of the country this capital can 
be made to pay better than 4 per cent, interest; and when confidence is 
fully restored there is no reason to believe that people will be willing to 
accept 4 per cent, in lieu of 6 or 8 per cent, on their investments. 
Bad crops during the present year would materially change the aspect 
of our foreign trade, and with the resulting unfavorable exchanges, we 
may find ourselves in the midst of a restricted money market which 
would preclude borrowing at even 4 per cent. 

It is well known that a large amount of the 5s and the 6s which might 
now be exchanged for 4s are in the hands of banks and bankers who 
are not at all anxious to surrender them. Appreheusions that steps 
might betaken towards the exchange of these bonds caused them iuthe 
early winter to fall until owners would, on the basis of their payment 
when due, obtain only about 4 per cent, interest; but in view of the 
delay in the action of Congress in this matter, aud a growing belief that 
the bonds would not eventually be paid till sometime after they were 
due, they have again advanced, and the indications are that they are 
now principally held by bankers and large institutions, who have thus 
profited by the recent rise in this class of securities, and who hope to 
hold on to them still longer. 

Again, we are to consider that the issue of national-bank notes is 

based upon the government bond as collateral. On every $100 par 

value of bonds the bank is entitled to receive not to exceed 90 per cent. 

in notes. Should the banks be permitted to deposit 3.65 bonds as 

4 SH 



50 

collateral for circulation the notes received would not be as well secured 
as they are at present. It is possible that bonds might so decline in 
value that the holders of notes might not be secure. 

OBJECTIONS TO THE 3£ OR 3.65 BONDS. 

In the first place there is no certainty of our being able to sell either 
one of these bonds at par. Before a 3.65-bond can be sold at par, the 
4 would necessarily have to be sold at 109, in order to realize the same 
rate of interest to the investor. They are now selling at 104, at which 
price they yield 3.76 per cent., probably the lowest rate of interest ever 
known in this country. I submit some tables bearing on this matter 
which speak for themselves. 



51 



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52 

Table showing by months, quarter-years, half-years, and years during the calendar years 1878, 
and 1879, relative to the FOUR PER CENT, securities of the United States, their average 
prices in open market, both i7icluding the accrued interest (flat); and not including the same 
(net); the computed rate of interest realised to investors, and the corresponding net prices of 
3$ per cent, bonds having thirty years and fifty years, respectively, to run to payment. 



[Interest 



January 1, April 1, July 1, and October 1. The United States four per cent, securi- 
redeetnable at the option of the government at any time after June 30, 1907,] 



Months, quarter-years, half-years, anc 
calendar-years. 



Average prices of 
securities. 



Corresponding net 
prices of 3\ per 
cent, securities 
having to run— 






1878. 

January 

Fe brua'ry 

March 

April 

May 

June 

July 

August 

September 

October 

November 

December 

1879. 

January 

February 

March 

April 

May 

Juue 

July 

August 

September 

October v 

November ,C. 

December 

1878. 
First quarter-year average. . . 
Second quarter-year average. 
Third quarter-year average. 
Fourth quarter year average. 

1879. 
First quarter-year average... 
Second quarter-year average. 
Third quarter-year average.. 
Fourth quarter-year average . 

1878. 

First hal f-year average 

Second half-year average 

1879. 

First half-year average 

Second half-year average 

Calendar year : 

1878 

1879 



101. 69 
101.94 
101.54 
100. 4.3 
100. 81 
10k 21 
100. 42 
100. 675 
100. 94 

99. 875 
100. 28 
100. 51 

99.86 

100. 22 
99.47 
99.70 

102. 76 
102. 70 
102. 06 

101. 51 

101. 95 

102. 20 

103. 00 
103. 67 



101.52 
101. 45 
100. 71 
100. 27 
100. 32 
100. 38 
100. 25 
100. 17 
100.11 
99.70 
99.78 



99.73 
98.64 
99.54 
102. 27 

101. 87 
101.89 
101.01 
101.12 

102. 03 
102. 50 
102. 84 

101. 23 

100. 32 
100. 18 

99.72 

99. 35 
101.23 

101. 34 

102. 46 

100. 77 



100. 29 
101.90 



100. 36 
100.05 



l\W.s\ 

29J 
29| 
29l- 
29" 
29 
29 



Per cent. 
3.91 
3.92 
3.96 

3. 99 
3.99 

3! 99 
4.02 
4.01 
4.02 

4.02 
4.017 
4.08 
4.03 
3.87 
3.89 

3! 94 
3.94 

3. 85 
3.83 



3.99 
3.99 
4.02 

4.04 
3.93 
3.92 
3.85 

3.96 
4.00 



91.65 
91.65 
91.48 
91.48 
91.48 
91.48 

90. 99 

91. 05 
90.99 



91.04 
90.04 
90. 83 
93. 50 
93.16 
93.16 
92. 32 
92. 32 
93.33 
93.84 
94.05 

92.49 
91.59 
91.48 
91.00 



92.49 

92. 60 

93. .74 

92.04 
91.24 

91.60 
93.17 



3.98 
3.93 



90.87 
90.05 
89.64 
89.64 
89.44 
89.44 
89.44 
89.44 
88.75 
89.04 
88.75 

88. 8.'i 
88.91 
87.72 
88. 66 
91.90 
91.49 
91 49 
90.46 
90.46 
91.70 
92.31 
92.06 

90.67 
89.57 

89.44 



88.49 
90.68 
90.80 
92.02 

90.12 



89. 63 
90.50 



It is admitted by all persons who desire to place the 3is or 3.65s, 
that such' bonds must have a term of 50 years to run, in order to make 
a success of the loan. It has always been the policy of our government to 
make its loans as short as practicable, or at least to give the government 
control of them after a comparatively brief period. It may be that with- 
in 30 years our surplus revenues will be sufficient to enable us to pay oil 
the proposed loan, and in such a case the hands of the government 
should not be tied. The wisdom of the policy which has heretofore 
been pursued, of giving the government au option in the redemption of 



53 

these loans after a few years, has been already well demonstrated. 
Only by the reservation of this option has the refunding of the past 
few years and the consequent reduction of interest of nearly $20,000,000 
per annum under its operation been possible. 

If, at the end of 30 years, the government should wish to take up the 
$750,000,000 of 4 per cents proposed to be issued hereafter for refunding 
purposes, it will then have paid $950,00.0,000 of interest ; but if a 3£ per 
cent, bond should be issued for 50 years, without option, government 
would be compelled to pay over $1,300,000,000 ; if a 3.65 bond, nearly 
$1,400,000,000 in interest before the bonds could be paid off at par ; or 
about $500,000,000 more than if a 4 per cent, bond should be issued for 
30 years. Should our sinkrng-fund be kept up as now required by law, 
the debt will be wiped out in about 30 years, and the $500,000,000 would 
thus be saved to the people. 

Mr. Allison. That expresses your view as to what we ought to do 
in the future. 

Mr. Beck. Have you stated anything anywhere about the mode of 
placing the loan ? I thought we made a great success in that loan (the 
refunding certificates), which approached nearer to a popular loan than 
any other. How far could you reach the masses in that way ? 

Secretary Sherman. You can do it easily. It would be necessary to 
modify the bill introduced by Mr. Morrill in one particular. That bill 
continues the law which authorizes the sale of refunding certificates at 
par for cash. We ought rather to sell these certificates, which are con- 
vertible into 4 per cent, bonds, for the same premium that the bonds 
themseves sell for ; a premium that will enable the department to obtain 
the 5s. and 6s. which it desires to refund. It would be a great transaction, 
and one of much value to the government. But under the provisions of 
this pending bill I could not dispose of these refunding certificates to 
the people to whom I would sell them, as they are not the ones who 
would in return give me bonds. The people, whom we want to get 
these certificates, not having the bonds, if we should sell them the cer- 
tificates for money, what could we do with the money ? 

Mr. Ferry. Could you not turn right around and sell the four per 
cents for four per cent, premium. 

Secretary Sherman. I could only do it in exchange. 

Mr. Ferry. Suppose you receive cash and then you retire the bonds 
— it is a different process, but you reach the same end. 

Secretary Sherman. We can do that. But suppose I sell a million 
of refunding certificates, not getting a million of bonds, I would increase 
the public debt. 

Mr. Morrill. You must authorize him to sell the four per cent, cer- 
tificates at a premium. 

Mr. Beck suggested that the Secretary's views on this point be put in 
shape and presented to the committee. 

Mr. Morrill. A better method would be for the department to pre- 
pare a suitable bill. 

Mr. Beck. But that would not explain itself to us. 

Secretary Sherman. The bill you have here covers the whole ground, 
except so far as refunding certificates are concerned. 

Mr. Beck. I think it would be better for the Secretary to add an ex- 
planation about the refunding certificates. 

Mr. Allison. I think it is desirable to have this certificate feature 
added, and if you can work it properly we perhaps might incorporate 
it into the law. 

Secretary Sherman. We can do that. 



54: 

Mr. Beck. Whether we think it advisable or not, I think it is ex" 
tremely desirable that this committee should have the Secretary's opin" 
ions about the matter, in case it should come before the Senate, and 
there may be persons, and I may be one of them, who will entertain that 
view, and who will like to know what there is for and against it. 

Mr. Ferry. Could you not purchase the five per cent, bonds and then 
make one clear the other ? 

Secretary Sherman. Suppose I cannot purchase enough, then I would 
have to increase the public debt. All these loans are coupled with the 
conditions that I must not increase that debt. It is a pretty large au- 
thority to allow the sale of bonds without limit as to price ; as long as 
you allow the sale of bonds so as to buy the bonds desired to be re- 
deemed at no expense to the government there is no danger. 

Mr. Beck. I observe in all your funding operations you have to tem- 
porarily increase the public debt when the two classes of bonds are out- 
standing. 

Secretary Sherman. Temporarily increase the bonded debt, but we 
do not increase the aggregate debt because we deduct the money on 
hand. 

Mr. Kernan. That is, the receipts from sales of bonds are put as a 
credit against bonds not redeemed. 

Mr. Beck. For example, on the 28th of February, 1879, I look at the 
monthly statement of last year and the principal of the interest bearing 
debt of the United States was $2,014, 000,000, while the debt less cash 
in the Treasury was $2,026,000,000, thus showing that every dollar of 
the debt of the United States was paying interest on that day except 
about $12,000,000. 

Secretary Sherman. That was caused by the sale of $216,628,200 of 
4 per cent, bonds, for which bonds had been called but had not matured, 
as fully set forth on that statement. 

The Chairman. What is the length of time when the bonds sold and 
the bond called in refunding operations both draw interest ? 

Secretary Sherman. From the date of sale of bonds sold to the time 
of maturity of the bonds called. 

The Chairman. That is the extreme limit of time during which both 
bonds could draw interest ? 

Secretary Sherman. As I explained to j t ou, I avoided that somewhat 
by calling in advance, and by that means I reduced this limit of double- 
interest time to about 60 days. It cannot be any more than 90 days. 
In 1877, as I said before, I came very near being caught with fifteen 
millions called in advance. 

You will find that other governments pay from two to three per cent, 
commission, and that no other government has sold bonds with such 
pecuniary advantage as we have. 

The Chairman. Do they not require notice ? 

Secretary Sherman. England has sold her three per cent, bonds 
seldom at par, and some have been sold so low down that they yielded 
an interest of six and a half per cent, to the investor. They do not 
care anything about the principal of the public debt j they only look 
to see what interest they must pay. 

Mr. Morrill. But they are being scored on all sides lately in rela- 
tion to their public debt. When Gladstone and Bright contrast their 
financial policy with the American policy of paying debts, the English 
policy does not loom up very well. 

The committee then adjourned. 



55 

APPENDIX A. 

NOTES OF A CONFERENCE BETWEEN THE COMMITTEE ON COINAGE 
WEIGHTS, AND MEASURES AND SECRETARY SHERMAN AND DIRECTOR 
OF THE MINT BURCHARD. 

Washington, April 26, 1879. 

The Chairman. Before proceeding to the main subject of this con- 
ference I wish to ask some questions in relation to the trade-dollar. 
Can you give us, Mr. Secretary, a correct stateuieut or estimate of the 
number of trade dollars now in the United States"? 

Secretary Sherman. I c!tn state that the amount of trade-dollars that 
have been coined is $35,959,300. The amount of them exported, as 
shown by the statistics we have, partly estimated but nearly accurate, 
may be said to be about twenty-nine million dollars. These are about 
the figures that were given in my annual report in December last, and 
I believe they are as nearly accurate as possible. This would leave in 
the country between six and seven millions of trade-dollars. 

Mr. Claflin. Is there any evidence that any of those have been 
taken up, used as bullion or any other way ? 

Secretary Sherman. We have no evidence on that point. It is hardly 
probable, however, that they would be, because bullion has been cheap- 
er all the time than trade-dollars. 

The Chairman. Is there any serious objection to taking up those 
trade-dollars and giving standard silver dollars for them aud then re- 
coining them — never issuing them again ? 

Secretary Sherman. I think the objections are very serious. There 
are three radical objections, any one of which, I think, ought to prevent 
the government from taking that course. First, it would be a discrim- 
ination against our own miners in the price of silver bullion and in 
favor of the holders of these dollars in China. At least from twenty- 
six to twenty-eight millions of these trade-dollars are held in China as 
bullion. The trade-dollars were coined as bullion and sold as bullion, 
for private parties, for private profit, and the government had no con- 
nection with them except to charge the actual cost to the owners of the 
bullion. They had a limited legal-tender quality until July 22, 1876, 
but they did not get into circulation in this country until October, 1876 ; 
so that every trade-dollar that is now in circulation in this country was 
put in circulation at a time when it was not a legal tender, but simply 
represented 420 grains of standard silver. If we should now make it 
exchangeable for the standard silver dollar, and equal to the gold dol- 
lar, it would be worth for that purpose 14 or 15 cents more than it is 
worth as bullion, aud the owners of this bullion in China, or the pur- 
chasers of those coins for the purpose of bringing them here, would get 
the benefit of that difference. We can buy the same amount of silver 
bullion from our own miners to-day for four or five millions of dollars 
less than we can get this bullion in China, if the proposed measure 
should become a law. That is the first objection. 

Mr. Warner. Would that objection, however, lie if silver was ad- 
mitted to free or unlimited coinage in the United States % 

Secretary Sherman. No ; if silver coinage is made free at the rate of 
16 of silver to 1 of gold, we shall have a mono-metallic system of silver 
coinage, excluding gold from circulation. Then, as a matter of course, 
the objection would cease ; then the trade-dollar would be worth more 
than the standard dollar. That is, if you adopt the bullion value of sil- 
ver as the sole standard in this country, then it makes no difference 



56 

what is done with the trade-dollar; but as lon^ as you maintain the 
gold staudardor the present standard, based upon the gold coin of 25-^- 
grains, the introduction of the trade-dollar, either as a coin or as the 
equal of the standard dollar, will be a dissriminatio 1 in favor of the 
owners of this silver bullion in China and against our own miners to the 
extent that I have stated. 

Mr. Warner. That is, while silver is coined under existing law and 
regulations ? 

Secretary Sherman. Certainly. The chairman did not ask me about 
my views in regard to thequestion of bi-metallic or mono-metallic money. 
£%The Chairman. Suppose we change our system in relation to the coin- 
age of silver and make it unrestricted, so that the government will not 
purchase bullion at all ; suppose that the system of purchasing bullion 
for coin is abrogated and the unlimited coinage of silver is introduced, 
then ought not the trade-dollar and the legal-tender standard dollar to 
be interchangeable % 

Secretary Sherman. If Congress should finally determine to adopt 
the silver standard 

The Chairman. The double standard % 

Secretary Sherman. Yes ; the free coinage of both gold and silver 
upon the present ratios. If that is to be adopted, then the proposition 
is not objectionable ; but that brings up at once the great question 
whether that ought to be done. 

The Chairman. That is the point we have before us, and I understand 
that in case we do that, your opinion is that then the trade-dollar and 
the standard silver dollar ought to be interchangeable. 

Secretary Sherman. Yes ; but in case you should do that, no man of 
ordinary sagacity would surrender a trade-dollar for the standard dol- 
lar; he would want to receive the difference between them. You would 
not be able to get the trade-dollar exchanged for the standard dollar, 
because the trade-dollar contains 420 grains of silver, while the stand- 
ard dollar contains only 412£. 

The Chairman. Then you would not be bothered with the recoining % 

Secretary Sherman. No. The trade-dollar would be, as the old Mexi- 
can dollar was formerly, a little more valuable than our standard dollar. 

Mr. Warner. It would simply go to the mint as bullion! 

Secretary Sherman. Hardly ; it would not be exchanged on an equal- 
ity with the standard dollar. 

The Chairman. What amount of standard silver dollars coined since 
the act of last year are now in circulation ? 

Secretary Sherman. According to latest returns received at the de- 
partment there have been coined of these dollars $30,542,950. We have 
now on hand $22,887,695; leaving $7,G55,255 of those dollars in circu- 
lation. 

The Chairman. How many coin-certificates have been issued under 
the act of 1878 ? 

Secretary Sherman. An amount of $10,437,000. Nearly all our sil- 
ver bullion is purchased by silver-certificates, but then they are at once 
returned to the Treasury. 

The Chairman. I understand you to say that there are very few of 
them out now % 

Secretary Sherman. Very few. They are at once converted. They 
come right back. 

Mr. Warner. They come back in payment of duties? 

Secretary Sherman. Largely in payment of bonds, and also for the 
payment of duties. The whole amount outstanding now is only $176,330. 



57 

Tbe Chairman. In connection with the sales of bonds that have been 
made lately? 

Secretary Sherman. Yes; lately and all along. 

The Chairman. What would be the objection to issuing coin-certifi- 
cates down to denominations of fives, and threes, and twos, and ones, 
and halves, and quarters, for change? 

Secretary Sherman. The objection to issuing coin-certificates while 
you have legal tender notes outstanding is that the coin-certificates, of 
whatever denomination they may be, will not circulate while the legal- 
tender notes are outstanding. Until the 1st of January the coin-certifi- 
cates had the advantage over the legal-tender notes, because they were 
receivable for bonds, for customs duties, aud for all purposes, and there- 
fore they had a special value or use which the legal-tender notes had 
not; but now the legal-tender notes are, iu effect, a coin-certificate, and 
may be used for all purposes. There is now no occasion for coin-certifi- 
cates, which come back into the Treasury. 

Mr. Vance. Then can they not be put out again ? 

Secretary Sherman. They can, but we have "greenbacks," which we 
are bound to keep in circulation, and which fill all the channels of circu- 
lation under existing law. It would be difficult to keep the two forms 
of currency afloat at the same time. If either were taken away, then 
the other would fill the channels of circulation. 

Mr. Warner. Is there any objection to those certificates if persons 
holding bullion or coin prefer the certificates to handling the coin or 
bullion, even though the certificates may come back, as coin would, in 
payment of duties to the government? 

The Chairman. The question I meant to ask is this: Is there any 
practical objection to issuing coin-certificates, if persons prefer them, so 
as to get rid of these fractional silver dollars; iu other words, is there 
any objection to having coin-certificates ready to exchange with any 
persons who prefer them, down to the denominations of fives, ones, halves, 
and quarters ? 

Secretary Sherman. If you issue them in small sums there is the 
same objection that was made always to the fractional currency, that it 
was very perishable aud very costly, and a great loss to the people on 
account of its being so perishable. 

The Chairman. Would they be more perishable, or a greater loss to 
the government, or more costly after the plates are made, than the coin 
itself is? Is not the waste aud abrasion of the coin itself quite as great 
as that of the fractional currency ? 

Secretary Sherman. Experience shows that it is not. The fractional 
currency was found to last only about fifteen or eighteen months, while 
silver coin lasts iu circulation about twenty-three .years, and gold coin 
about fifty years. The actual cost of the fractional currency in the last 
year or two before it was abandoned was shown to be about three per 
cent, per annum, and that currency perished in about fifteen or eighteen 
months on an average. 

• The Chairman. But you would have the plates, so that there would 
be no cost in replacing it except for the paper? 

Secretary Sherman. Yes; but on ten-ceut and twenty-live cent cur- 
rency the cost, even of a million, is considerable. 

The Chairman. I would not have the denominations go below twenty- 
five cents. You speak of gold coin wearing fifty years, and silver coin 
a much less time; how do you account for that? 

Secretary Sherman. That, I suppose, is because the gold coin passes 
through fewer hands. 



58 

The Chairman. We had a statement here the other day about a 
double-eagle which was weighed in the Treasury Department and found 
to have lost seven grains. 

Secretary Sherman. It must have undergone pretty rapid and ex- 
tensive usage. 

The Chairman. Mr. Riggs, I understand, says that his loss is im- 
mense on gold coin, because the Treasury will not take it from him ex- 
cept by weight, and his loss thereby is several per cent. 

Secretary Sherman. There are statistical tables in the reports of the 
Director of the Mint which show very accurately the amount of abrasion 
of different coins. Gold coin, from the fact that it does not circulate so 
freely, lasts longer than any other. 

The Chairman. I understand your answer to my question to amount 
to this: that there is no practical objection to issuing these coin certifi- 
cates except the increased cost. 

Secretary Sherman. As to the fractional notes, the objection is one of 
cost and wear and tear. Another objection is this : I think the instinct- 
ive desire of men generally, especially laboring men, is to handle the 
coin itself. I think this desire is better gratified by the sense of touch 
in handling coin than in handling paper. 

The Chairman. My question does not go to that extent, because it 
leaves it optional with people to have the one or the other as they pre- 
fer. Is there any practical objection to the government being ready to 
issue these certificates if the holders of coin or bullion shall so desire ? 

Secretary Sherman. I do not think that the double system is wise. 
If you adopt the one you should reject the other. The double system 
puts us to the great expense of maintaining mints to supply the coin, 
and also the Bureau of Engraving aui Printing to supply the paper. 
In my judgment it is better to have either the one or the other, not both. 
Many very intelligent people, bankers as well as others, do, I know, 
prefer small fractional currency to silver currency. 

There is another grave objection to the issue of coin certificates, that 
they will inevitably replace and destroy the legal-tender notes, or com- 
pel the suspension of specie payments on such notes. In case of the 
slightest suspicion or doubt of the ability to maintaiu redemption, or in 
case brokers or bankers choose for speculative purposes to make gold 
scarce, they may, without cost or trouble, or without handling the coin, 
present legal-tender notes to the Treasury and demand coin, and turn 
over the coin for certificates. Upon issuing the certificates the Treas- 
ury must keep the full amount of coin for the payment of the certifi- 
cates, thus reducing the coin reserve for the payment of United States 
notes, and throwing upon the Treasury the risk and expense of keeping 
the coin for private and perhaps hostile purposes. It was this very dan- 
ger that induced me to decliue in December last to issue any more gold 
certificates. One protection to the Treasury is the inconvenience to 
which the parties presenting the coins would be put in receiving and 
hoarding them, but if the issue of certificates is made mandatory, a few 
active brokers might convert all the coin in the Treasury into certifi- 
cates, and leave no means with which to redeem United States notes. 
I can see no public interest that would be promoted by a mandatory 
issue of coin certificates in exchange for gold or silver bullion, and if 
they are issued without an actual deposit of coin, to be held for their 
redemption, they are only another form of United States notes. 

The Chairman. One other question. What do you think of having 
ingots of gold or silver, say silver, of the value of $100, assayed, refined, 
and stamped, for purposes of exchange, instead of coin ? Do you or no 



59 

think that such ingots would answer the purpose of a medium of exchange 
with other countries, to be used instead of coin in settling balances — I 
mean ingots of pure silver or gold? Dr. Lindermau made the sug- 
gestion to us last year, and that is why I waut to get your views on the 
subject now. If tbat were done, there would be no draiu from abroad 
upon our coinage. These ingots would be resorted to instead. 

Secretary Sherman. We have ingots of gold and silver now. In the 
assay office in New York you will see great ingots of gold and silver of 
various denominations and values, with the values stamped upon them, 
just as you suggest. 

The Chairman. But they are not of the same denominations as the 
coin? 

Secretary Sherman. No. 

The Chairman. The suggestion was to have them of the same denom- 
inations, and to have them all alike, fine ingots of silver of $100 each, 
with $100 worth of silver in them, measured by our standard dollar. 
Dr. Linderman's idea was that those ingots would be used in com- 
merce, for the purposes I have suggested, without a resort to coin. 

Secretary Sherman. That is rather a question of convenience. It is 
to provide coin of the denomination of $100 or ten eagles. 

The Chairman. The idea was, I believe, that when those ingots went 
abroad the foreign mints would not be troubled with our alloy, because 
the ingot would be pure silver. 

Secretary Sherman. Well, that is a technical question which I do not 
pretend to know much about — whether it is better to export silver in the 
pure state or not. Most of the bullion in the mint and at the assay 
office is gold or silver with a shade of alloy ; then when coined they add 
the proper alloy to conform to the law of the country. 

The Chairman. I will put the same question to Mr. Burchard, the 
Director of the Mint, whether he has given any attention to that point. 

Mr. Burchard. I have not, particularly. The question of stamping 
a value upon silver bars has not been raised or considered since I have 
had charge of the Mint Bureau. 

The Chairman. J wish, Mr. Secretary, that you and Mr. Burchard, 
when the notes of this conference are submitted to you, will add any- 
thing that may occur to you in the mean time upon this point. 

Mr. Burchard. A person bringing silver bullion now to the mint 
and desiring to have it converted into fine bars is entitled to have that 
done, and to have fine silver bars delivered to him in lieu of the bullion. 
The value is not stamped upon such silver bars, but simply the weight 
and fmeness. That is now the course of business at the coinage mints 
and at New York assay office. 

Mr. Warner. And the only limit under the law now is that nothing 
shall be stamped less than five ounces; which would be a very small 
bar of silver. 

Mr. Vance. What is the trade-dollar worth at the Treasury now, 
Mr. Secretary ? At what rate do you receive it in place of bullion. 

Secretary Sherman. We are not authorized to receive it at all except 
as bullion ; the bullion value is now 85.8. The commercial value among 
the brokers is 98.75. We would buy it as bullion, if it was offered, at one 
cent under the market rate, because we buy at one cent less than the 
bullion value when offered in small lots, but in large lots we buy at the 
market rate for bullion. 

Mr. Vance. What is the probable amount of the fractional coin now 
in circulation ? 



60 

Sectetary Sherman. The exact amount of fractional silver in circu- 
lation cannot be given. Of the amount which has been paid out since 
January 1, 1875, there is now outstanding $41, 485,433. 55, and the amount 
now on hand at the several mints and assistant treasurers' offices is 
$6,598,492.44. 

Mr. Fisher. To pursue the inquiry of the chairman a step further: 
What would you think of the idea of the issuauce of silver-certificates 
of the denomination of one dollar and two dollars ? There is a scarcity 
of legal-tender notes of those denominations in the country. 

Secretary Sherman. I think the objections to issuing silver-cer- 
tificates or gold-certificates of auy denominations while United States 
notes are in circulation are very clear. As to the scarcity of United 
States notes of small denominations, that is simply because persons who 
come to the Treasury for money will not take them. We issue ones and 
twos freely, but hardly anybody wants them. Anyone who chooses 
can come to the Treasury with a draft for $100 or $1,000, and get every 
dollar of it in one-dollar notes if he wishes. 

Mr. Fisher. Can that be done now % 

Secretary Sherman. Certainly, and it could always be done. I know 
that a stringency does occur in some localities, because the great trans- 
actions with the government require large sums of money, and people 
prefer notes of large denominations because it is easier to carry large 
sums of money in that form. Always, since I have been in the depart- 
ment, I have taken great pains to distribute ones and twos, and any 
person receiving money can get any number of them he wishes to carry 
away at any time. 

Mr. Fisher. In my section of Pennsylvania we have been suffering 
from a scarcity of those small notes. You have spoken of people pre- 
ferring coin to paper; now, our people consider the silver dollar a nui- 
sance. 

Secretary Sherman. I think the silver dollar is rather too large for 
change. I was speaking rather of the subsidiary coinage. But so far 
as the one and tw£> dollar notes are concerned, I am very glad to state, 
and to have it generally known, that anybody can get as mauy of them 
at the Treasury as he wants, either in payment of draft or in exchange 
for larger sums. 

Mr. Fisher. I have heard it said that the Treasury took in the 
smaller notes and issued only the larger ones, and I am glad to know 
from the Secretary that we can get the smaller denominations. 

Secretary Sherman. I have endeavored to promote the circulation of 
the ones and twos in every way that I could. 

Mr. Claflin. The difficulty in keeping the small legal-tender notes 
in circulation is that the banks, having to keep a reserve, gather up the 
legal tenders and do not pay them out, but put them in the Treasury. 
That is because they do not issue ones and twos of their own. If they 
issued ones and twos of their own, the legal tenders would be freely cir- 
culated; but as it is, the tendency must be for them to go into the bank 
reserves. 

The Chairman. But why don't they pay them out ? 

Mr. Claflin. Because they have to keep from 10 to 25 per cent, re- 
serve, and they do not want to go and get gold and silver and pay out 
the ones and twos ; they prefer to hold the small notes for their reserve. 
That is the difficulty. 

Mr. Fisher. That is not the difficulty with us. The difficulty in our 
section is that the ones and twos have been worn out and havegoue in for 



61 

redemption, and we have not received others in return of the same small 
denominations to supply their places. 

Mr. Claflin. That is, your bauk notes, ones and twos, that were in cir- 
culation have gone home, and the department has sent back five-dollar 
notes, or notes of some other larger denomination, in the place of the 
ones and twos. 

Mr. Fisher. Then it is only a question of time when they will all go 
out of circulation. 

Mr. Claflin. It is only a question of time in regard to the ones and 
twos. 

Secretary Sherman. There never was more than between five and 
six millions of small bank notes in circulation, while we have from forty 
to fifty millions of small United States notes in circulation. 

Mr. Claflin. Bat those are all held by the banks; they are not in 
circulation. 

Secretary Sherman. We give ones and twos for fives, tens, and hun- 
dreds, and pay them out when called for. 

Mr. Claflin. But the natural result is that they are held by the 
banks for reserves. 

Mr. Warner. Has there been, then, within the last year, or since the 
act of May 31, 1878, any absolute contraction in the amount of one and 
two dollar legal-tender notes in circulation ? Is the amount absolutely 
any less now than a year ago ? 

Secretary Sherman. In answer to that I will give you a table, show- 
ing the exact amount of ones and twos out May 31, 1878, and at the pres- 
ent date. 



Date. Denomination. 


Amount. 


Date. • Denomination. 


Amount. 


May 31, 1878 Ones. 


131, 576, 728 80 
21,601,458 20 




118, 953, 172 80 











Mr. Willis. Mr. Secretary, in answer to the first question which was 
put to you by the chairman you said that there were three objections 
to the recoiuage of the trade dollar. You stated one, and were i nter- 
rupted before you had completed the statemenc of those objectio ns. I 
should be very glad to have you now state the other two. * 

Secretary Sherman. The second objection is that it would b r ing us 
abruptly to the single silver standard. The few millions of trade, dollars 
now in circulation are very unpopular and cause the demand to C ongress 
to get rid of them. If you now make them lawful money, or authorize 
them to be converted at par into lawful money, the largest part of the 
30 millions exported will be presented for redemption in the standard 
silver dollars. If you force the standard silver dollars into circulation, 
I know by experience they will at once come back for taxes and bonds, 
and as often as reissued will come back, until we will be driven to hoard 
them in our vaults, or they will drag our paper money down to the 
market value of silver bullion and will expel gold. This will create wide 
and sweeping changes in contracts. For forty years all contracts have 
been based upon gold ooin, except since the issue of legal-tender notes. 
]STow these are at par with gold coin, aud thus far we have maintained 
our silver coin at the same standard because the amount was limited 
and the supply mainly in the Treasury. The addition of 30 millions of 
trade-dollars to our active circulation, together with the continued coin- 
age of two millions a month of standard dollars, would soon force into 



62 

use the silver dollar as the sole standard of value for all paper money 
and for all contracts. If this is to be done it should be directly, by free 
coinage, when all silver bullion would have an equal chance, and not by 
discriminating in favor of bullion in a trade dollar, every one of which 
now in circulation in this country is a fraud upon the law. My view of 
this trade-dollar was given last year in a letter which was published, 
and was better expressed than I can in this conversation. If you will 
allow me, I will hand it to the reporter. 

Treasury Department, 
Office of the Secretary, 
Washington, D. C, September 3, 1878. 

Sir : I hasten to fulfill the promise I made you that upou my return to the depart- 
ment I would write you fully conceruing the issue of the trade-dollar aud the present 
depreciation in its value. 

The coinage of this dollar was authorized by the coinage act of February 12, 1873, 
in words as follows : 

" That any owner of silver bullion may deposit the same at any mint to be formed 
into bars or into dollars of the weght of four hundred and twenty grains troy, desig- 
nated in this act as trade-dollars, * * * and the charges for converting standard 
silyer into trade-dollars, for melting and refining, when bullion is below standard, for 
toughening when metals are contained in it which render it unfit for coinage, for cop- 
per used for alloy, when the bullion is above standard, for separating the gold and 
silver when these metals exist together in the bullion, aud for the preparation of bars, 
shall be fixed from time to time by the Director [of the Mint], with the concurrence 
of the Secretary of the Treasury, so as to equal, but not exceed, in their judgment, the 
actual average cost to each mint and assay office of the material, labor, wastage, and 
use of machiuery employed in each of the cases aforementioned." 

As its name indicates, the purpose of this coin was for trade, not for circulation, 
though by classifying it with other silver coins the law made it a legal tender to the 
amount of five (5) dollars in any one payment. 

At the time of the passage of the act the actual value of this dollar, including the 
charge of 1£ cents for coinage, was a little more than $1.04 in gold. 

Under such circumstances there could be no object for the owner to put the coins 
into circulation, aud consequently they were exported mostly to China, where, from 
lack of a circulating medium, these pieces, convenient in size, and bearing the guar- 
antee of a great government as to their weight and fineness, obtained an extensive 
circulation, and created a market for the silver of the Pacific States, as intended by 
the act. 

After a few mouths, however, an unforeseen depreciation in the value of silver bull- 
ion occurred, and in the early part of 1876 this depreciation reached such a point that 
one dollar in gold would purchase more than the necessary amount of silver for a 
trade-dollar and pay for its coinage. 

Under such conditions dealers in bullion found a profit in putting trade-dollars into 
circulation at par in the Pacific States, where the currency was upon a gold basis, but 
the coin being a legal tender for only five (5) dollars, its circulation was necessarily 
limited in amount as well as restricted in locality. 

Th« people of the Pacific States, however, objected to its use at all for circulation, 
and the attention of Congress having been called to the matter, on the 8th of May, 
1876, Hon. Samuel J. Randall, of Pennsylvania, introduced into the House a bill the 
third section of which repealed the legal-tender quality of these coins. 

On the 10th of June following, Hon. S. S. Cox, of New York, reported the measure 
to the House, urging its adoption. 

No objection was raised, and it became a law July 22, 1876, without modification or 
an opposing voice or vote in either House, and is as follows : 

"That the trade-dollar shall not hereafter be a legal tender ; and the Secretary of 
the Treasury is hereby authorized to limit, from time to time, the coinage thereof to 
such an amount as he may deem sufficient to meet the export demand for the same." 

Up to that time (excepting a few days), aud for several months thereafter, the trade- 
dollar cost more than a paper currency dollar, and consequently none of the coins got 
into circulation in other than the Pacific States. 

Owing to the appreciation of the paper currency, however, in the fall of 1877, the 
trade- dollar became of less value than the paper dollar, and in December of that year 
a large number of them were put into circulation, at their face value, at a profit to 
the owners of the bullion. 

Apprehensive of such misuse of the coins, on the 15th of October in that year I 
ordered the discontinuance of their coinage at the mint at Philadelphia, aud four 
days later at the other mints. Meanwhile the department, in reply to numerous in- 



63 

quiries, had uniformly stated that the trade-dollar possessed only a commercial value 
depending upon the price of silver bullion. 

It will be seen that the coins were put into circulation months after the passage of 
the act taking from them their legal-tender character, and mainly after their coinage 
had ceased. 

But in their use as money the department has never had any interest or derived any 
profit. For the expense of their coinage the owner of the bullion reimbursed the gov- 
ernment, and this ended the connection of the government with the transaction. At 
no time and on no account have they ever been received, or paid out, by the Treasury, 
and it is a catise of regret that so many of our people should have accepted them at 
their face value, thus enabling their owners to put them into circulation at a consider- 
able profit. 

Under date of July 25, 1878, the Director of the Mint published tables from which 
the value of these coins can be ascertained and the terms on which they are received 
at the mints. He does not advise any one to dispose of them at such rates. The law 
under which the department buys bullion with which to coin the standard silver dol- 
lar requires the same to be bought at the market price, and it can purchase trade-dol- 
lars only as bullion. Possibly in time these coins will find a ready market in China, 
at nearly or quite their face value, for circulation as coin. 

In this connection permit me to correct any misapprehension as to the purpose and 
effect of the Director's circular. As early as August 24, 1876, the department informed 
an inquirer that the trade-dollar had only a bullion value, and this information has 
been repeated scores of times, and published by the press throughout the country. To 
avoid the labor of preparing manuscript letters, the Director embodied the informa- 
tion in a circular, adding thereto tables for the computation of such value. There was 
no new decision involved in the circular, though possibly its publication may have 
hastened the depreciation of the coins to their true value — an event which was in- 
evitable, and could not have been much longer delayed. 
Very respectfully, 

JOHN SHERMAN, 

Secretary. 

O. H. Booth, Esq., 

Mansfield, Ohio. 

The third objection to monetizing the trade-dollar is that it would 
seriously impair the public credit, and delay, if not defeat, the important 
refunding operations that ought to occur two years hence, when 800 
millions of United States bonds will become redeemable at the pleasure 
of the government. In January last, after resumption was accomplished, 
it became very easy to sell our 4 per cent, bonds. We sold nearly as 
many in the month of January as we did in two years before. I can as- 
sure you that if the public mind had been convinced that the trade-dol- 
lar was to be monetized, and that the government would adopt the single 
silver standard, we could not have accomplished the refunding of the 
5-20s and 10-40s. The forbearance of Congress at the last session greatly 
aided the Treasury Department. The shadow of this fear was the only 
restraining motive in refunding. If by 1881 the measures proposed shall 
have been adopted, it will not, in my opinion, be possible to sell 4 per 
cent, bonds at par. But if let alone, the whole 800 millions may be 
funded at 4 per cent, or less. Public credit is exceedingly sensitive. 
Gold was the standard coin in contemplation when all the bonds were 
issued. To take advantage of the unforeseen fall of silver bullion to 
issue a silver coin worth only S5 per cent, of gold coin would excite dis- 
trust and fear. To advance public credit you must do all or more than 
was expected by your creditor when your securities were issued, aud 
you get the full benefit of this in lower rates of interest aud improving 
credit. 

My general answer to your question as to the trade-dollar is that this 
coin ought to be left precisely where it is, a piece of silver bullion con- 
taining 420 grains of standard silver, issued for the benefit of merchants, 
at their cost and for their benefit, for exportation ; that every one of 
tbem now in circulation is there by an evasion of the law. The.y were 
issued after they ceased to be a legal tender for any amount, and their 
circulation should be discouraged aud refused by every citizen. If they 



64 

are now monetized, it will be a discrimination of full 15 per cent, against 
our miners of silver who have bullion to sell, and in favor of the Chinese 
and of our own merchants, who, by buying up this form of silver bull- 
ion in China for 85 cents, can sell it to the. government for a dollar. 
The proposition if adopted would suddenly change our standard of 
values from gold to silver, and would seriously impair our public credit 
and our ability to reduce the interest of the public debt. 

If, however, it is deemed politic to redeem the trade-dollar and get it 
out of the way, the better course would be to authorize its purchase as 
bullion, at a slight advance over other forms of bullion, to be paid for 
with lawful money or by the sale of bonds. This would soon retire 
those in this country, without tempting their importation from China. 
The public would soon understand that they were not lawful money, and 
this would stop their circulation. 

Mr. Warner. I understood you to say, Mr. Secretary, in connection 
with the trade-dollar, that you regarded it as stamped bullion rather 
than as United States coin. The language of the law is: "The silver 
coins of the United States shall be a trade-dollar, a half-dollar," and so 
on. Is there any objection to so amending that section as to strike out 
the words "trade-dollar"? 

Secretary Sherman. No. I think that the best way to dispose of the 
trade-dollar is to just let it alone as so much bullion, and to coin no more. 
I know the origin of it. It was issued simply for the convenience of 
merchants of California, to give them a market for their silver. It was 
stamped a trade-dollar, but neither that nor any other silver dollar was 
put in circulation in this country until three years afterward. I think its 
limited legal-tender quality was given it on the revision of the statutes, 
but afterward was taken away. 

Mr. Warner. This language that I have read is in the coinage bill of 
1873. 

Secretary Sherman. Then it was grouped with other silver coins as 
a legal tender for five dollars. The trade-dollar was coined at the ex- 
pense of the depositor of the silver, for his benefit, and without any 
profit to the United States. 

Mr. Warner. Is there any longer any object in coining that piece at 
all for private parties % 

Secretary Sherman. No, sir; and I should refuse to do it now if such 
an application were made. 

Mr. Warner. Is it not true that the owner of the bullion really gets 
no more for his bullion when it is divided into pieces of 420 grains each 
than he would get if it were divided into pieces of 412£ grains ? Was 
there ever any gain to the owner in having it coined % 

Secretary Sherman. Yes ; there was an advantage to him from 1873 
up to the time when the trade-dollar fell below the market value of gold 
coiu. 

Mr. Warner. But could he get any more per ounce for his silver ? 
A bar of silver containing 100 ouuces will make 111 trade-dollars, or 116 
standard dollars. The owner of the bar could get no more per ounce for 
his silver when divided into pieces of 420 grains than when divided into 
pieces of 412£ grains each, could he % 

Secretary Sherman. Yes, in China he could get more. The Mexican 
dollar was formerly the only dollar that got a foothold in China. The 
Chinese would not take our old American dollar of 412J grains, because 
it was less valuable than the Mexican dollar, and therefore the trade- 
dollar was coined, containing 420 grains, so as to make it better than 



65 

the Mexican dollar, and thus win its way into circulation in China. 
That was the object. 

Mr. De La Matyr, It was rather as money than as bullion. 

Secretary Sherman. It was bullion put into a form more valuable or 
more acceptable to the Chinese. 

Mr. Warner. But is it not true that we got no more per ounce for 
our silver in the end ? 

Secretary Sherman. The government did not get any more. 

Mr. Warner. Neither did the bullion-dealer. 

Secretary Sherman. But he got a market for his silver. They would 
take it in this form when they would not take it in the form of our old 
dollar. 

Mr. Warner. But at the time when the trade-dollar was adopted we 
stopped the coinage of the standard dollar. It was done in the very 
same act. Now, my point is this, that when our standard dollar would 
not pass in China and Japan at the same value as the Mexican dollar, 
the reason was simply because it contained a little less silver; but would 
it not pass for its bullion-value, the same as all coins pass for in foreign 
countries ! 

Secretary Sherman. No ; at that time the silver dollar did not pass 
anywhere except for exportation to China or India. Several millions of 
the old standard dollars were sent to China, but they were objected to 
by the Chinese, and therefore the merchauts of California, who wanted 
to make their silver bullion available, got Congress to order the coinage 
of this trade-dollar, which could be exported successfully. 

Mr. Warner. Then you think that by dividing 100 ounces of silver 
into pieces of 420 grains each the bullion-dealer did get more per ounce 
for his siver than he would have got for it in pieces of 412£ grains 
each 1 

Secretary Sherman. He did in China ; he did not here. He did in 
China because they liked the form of the coin; just as a person is will- 
ing to pay more for one piece of calico than for another of the same ma- 
terial because he likes the pattern. 

Mr. Claflin. Did not the bullion men obtain more use for their bull- 
ion in this form than they could in the ordinary form 1 

Secretary Sherman. They did. 

Mr. Fisher. They had a commodity to sell, and by getting it coined 
into trade-dollars they put it in a form to suit their customers. 

Secretary Sherman. Yes. 

Mr. Warner. But it comes right back to this point, that if you divide 
up 100 ounces of silver into pieces of 420 grains each you get more per 
ounce for your silver than if it were divided into pieces of 412£ grains. 
Now, would that be the case in England or France? 

Secretary Sherman. No; but we did not send them to England or 
France at that time. 

Mr. Warner. But when we export coin don't all foreigu countries as- 
say it and determine its value according to the quantity of metal that it 
actually contains? 

Secretary Sherman. AH European countries do and Japan does 
now ; but in China they took the coin of a foreign nation and circulated 
it. They put a kind of stamp upon it, which did not impair its value 
at all, but served to naturalize it, as we might say, and then they cir- 
culated it. 

Mr. Warner. Our trade-dollar is unlike any other coin issued by any 
couutry. It has a little more value than the Japanese yen, and it has 
a little more value than the Mexican silver dollar. 
5 SH 



66 

Secretary Sherman. Yes, it has a little more value than the Mexican 
silver dollar. I do not know that any other coin contains just the same 
amount of bullion, None of the trade-dollars have been issued lately, 
and none can be issued now. 

Mr. Waener. Then I understand that you think there is no objection 
to striking out the trade-dollar from our coinage? 

Secretary Sherman. Not the slightest. I am in favor of that course. 
In October, 1877, I issued an order, under the authority which the law 
gave me, stopping the coinage of the trade-dollar. The reason was that 
at that time, by the gradual depreciation of silver, the gold value of the 
trade-dollar was less than par, and there was no demand for it for ex- 
portation. 

Mr. Olaflin. The law gave you power to stop the coinage of the trade- 
dollar % 

Secretary Sherman. The law leaves it discretionary with the Secre- 
tary of the Treasury. 

Mr. Claflin. So that if a demand for them should spring up, you 
could issue them again % 

Secretary Sherman. Yes : the amount to be issued is left discretion- 
ary with the department. 

Mr. Claflin. And if a man now should ask you for trade-dollars, you 
would not make them unless you had evidence that he wanted to send 
them abroad 1 

Secretary Sherman. No ; the language of the law is that they are to 
be coined for exportation only. 

Mr. Warner. The present language of the statute is, " The silver 
coins of the United States shall be a trade-dollar," &c. 

Secretary Sherman. Yes ; but the act of July 22, 1876, authorizes 
the Secretary to limit the coinage of the trade-dollars to such an amount 
as he may deem sufficient to meet the export demand for them. 

Mr. Warner. I wish to call your attention now, Mr. Secretary, to 
section 3511 of the Eevised Statutes, which is section 1 of the bill now 
before this committee. The law as it now stands leaves out the word 
11 unit," which, I believe, up to 1873, always followed both the gold and 
silver coins, and substitutes the words " which at the standard weight 
of 25.8 grains shall be the unit of value." That you understand, I sup- 
pose, as changing the standard from both metals to gold alone. 

Secretary Sherman. I think that your insertion in this bill of the 
words " or unit" is substantially the same as the language of the original 
section. But that is a matter of criticism. 

Mr. Warner. The language now is " which at the standard weight 
of 25.8 grains shall be the unit of value. 

Secretary Sherman. Well, I think that is substantially the same. 
There can be but one unit. If you mean the word unit in its singular 
sense you can have only one. 

Mr. Warner. But a silver dollar may be a unit as well as a gold 
dollar. 

Secretary Sherman. Yes, you might make it " units," in the plural. 

Mr. Warner. But a silver dollar may be a unit as well as a gold dol- 
lar, may it not ? Whether both the units are of the same value or not, 
is another question. 

Secretary Sherman. That is a question which I suppose I need not 
discuss here. 

The Chairman. Mr. Warner's idea is that this legislation, making 
the gold dollar the unit of value, was the turning point in our monetary 
system. 



67 

Mr. Warner. Before that the standard rested upon both metals, or 
either, alternately, if they varied in value. 

The Chairman. One was not made the unit of value to the exclusion 
of the other; but when this change was made silver was demonetized, 
and that was the turniug point in our monetary system. 

Secretary Sherman. I would suggest to Mr. Warner that he had bet- 
better say u a unit." But what you want to get at is my opinion as to 
whether we should have a single or a double standard. 

Mr. Warner. Yes, we will come to that later ; but, at this point, I 
want to ask another question. Gold dollars, I believe, are now recoined, 
or it is the law that they shall be if tbey fall in weight more than one- 
half per cent, below the standard fixed by law and the limit of tolerance. 

Secretary Sherman. Yes, the law provides for recoinage in such cases. 

Mr. Warner. What limit of tolerance would you advise for silver 
coins '? I will ask the Director of the Mint the same question. 

Secretary Sherman. I have no very accurate knowledge about these 
technical questions ; and I think you can get that information better by 
asking the assayer or some of the technical officers of the miut, than you 
can from us. 

Mr. Warner. The States of the Latin Union make it oue per cent. 
Should that be adopted here with reference to the silver dollar if it is 
proposed to coin silver dollars unlimitedly ? 

Secretary Sherman. Our coinage is thought to be the best in the 
world now, because our limit of tolerance is very low, and the actual 
tolerance is very slight. At least that has been claimed for our coinage. 
But Mr. Bobert Patterson, of Philadelphia, formerly superintendent of 
the mint, or Mr. Snowden, the present superintendent, can give you 
more definite information on that subject than I can. 

Mr. Warner. The most important feature of this bill is, of course, in 
section 3, proposing to change section 3520 of the Bevised Statutes, 
which now reads as follows: "Any owner of silver bullion may deposit 
the same at any mint, to be formed into bars or into dollars of the weight 
of 420 grains Troy, designated in this act as trade-dollars." 

Secretary Sherman. I suppose you would rather have me state my 
view as to whether or not we should have a double or single standard ? 

Mr. Warner. Yes, your view in regard to restoring silver to unlim- 
ited coinage. 

Secretary Sherman. It would be a great object of national desire if 
we could restore silver and gold to free coinage; but it is one of the 
most difficult and delicate financial operations that you can propose. It 
has been more debated than almost any other question in the whole range 
of financial discussion. My idea is that you cannot do it ; that it is not 
possible to do it, and that this law would not do it, unless you make the 
ratio of the two metals as fixed by the law correspond as nearly as may 
be to the market value of the two coins. 

Mr. Warner. Do you think that practicable ? Is the market value, 
under the present coinage laws of Europe, so stable that it would be 
possible for one country alone to do that "I 

Secretary Sherman. I will come to that in a moment. It is undoubt- 
edly an important point. Now the attempt to make common or free 
coinage of the two metals, when there is a wide divergence between the 
legal ratio and the market ratio, has utterly failed in the past in many 
countries and in different ages. It is no use to try to do it. You cannot 
do it. The inevitable result will be that the cheaper bullion will till all 
the channels of circulation, and that instead of a bi-metallic money of 
two metals you will ha>ve a mono-metallic money of the cheapest. That 



68 

is an axiom which it is hardly worth while to discuss because it has been 
proved so many times. 

Now let me go a step farther. If the effect of this law would be to 
bring silver and gold to the relative standard that you propose, it would 
be a great object of desire, and nobody would be more in favor of it than 
myself, but I am sure (expressing an opinion pretty strongly) that the 
only effects of its adoption would be to bring upon us the surplus silver 
of other nations, of Germany and of France, where there is supposed to 
be four hundred million of dollars of silver, aud also to relieve England 
from her embarrassments about India ; and that our gold would flow from 
us until we would be practically and substantially at the single silver 
standard upon its bullion value. 

Mr. Warner. Upon that point I would like to ask you how, under 
this bill, which proposes the unlimited coinage of silver, silver bullion 
of other countries would come here any more than it does now. Will an 
ounce of silver bullion, or a pound, or a ton, exchange for any more of 
our commodities after being coined under the provisions of this bill than 
now ; and if not, why would it come here then any more than it does 
now ? 

Secretary Sherman. Because silver being the cheaper metal, all the 
balances of trade will be met and all commodities bought from this 
country will be paid for in that coin which is the cheaper, and the result 
would be that gold would be as thoroughly demonetized as silver was 
demonetized from 1834 until 1873. 

Mr. Warner. Would that change the value of silver bullion as com- 
pared with commodities in the United States 1 

Secretary Sherman. No, but it would reduce the value of the silver 
dollar as compared with our commodities. 

Mr. Warner. Then why would silver come here in the form of bul- 
lion from other countries any more after being coined thau it does now? 

Secretary Sherman. Simply because foreign nationswould pay for all 
they bought of us in the cheaper coin, and all our values would come 
to be measured^by the standard silver dollar, 412£ grains of silver bul- 
lion. Now they are measured by 25.8 grains of gold, but if you adopt 
the double standard it means the single standard of the cheaper metal, 
because in the nature of things you cannot maintain two standards un- 
less you have two equivalent values. Mr. Warner's object is all right, and 
I agree with him perfectly in desiring if, but I believe that any attempt 
to attain it by depending upon the present ratio of 16 to 1 would be as 
futile as the attempt of King Canute to check the ebb and flow of the 
sea. It is one of those operations of nature which human government 
cannot control. But if this government would adopt the standard or 
relation between the two metals which conforms as nearly as may be — 
you cannot come to it exactly — but as nearly as may be to the relative 
value of the two metals, then I believe it would be a very great object 
of desire, because then, if the surplus silver of the world came to us, we 
would get it at its market value and not at an exaggerated value. The 
fixed ratio resulting from this action would probably prove to be a close 
approximation to the market ratio for a considerable period of time. 
If you approximate the true relation within one or two cents, it may 
prove for perhaps a hundred years about the true ratio between silver 
and gold. In France the ratio of 15£ to 1 adopted in 1803 was very 
near the market rates for a long time. 

If this government is now to adopt a ratio which will fulfill these con- 
ditions, the present market values of the two metals will have to be 
takeu as the basis. * 



69 

Mr. Claflin. Do you mean oar government alone or the commercial 
nations acting together? 

Secretary Sherman. That is a question. Just now there is evidently 
a strong desire in several nations to adopt a new relation. Great Britain 
is threatened with great disasters from different standards in England 
and India. Among French statesmen there is a desire for a readjust- 
ment of this question, and I believe that if we hold firmly to our present 
position of a limited coinage of silver, or if we adopt the preseut market 
value of gold and silver as our ratio, we will bring the other nations to 
adopt that ratio. The conference that was had last summer really pro- 
duced a great deal of good. 

Mr. Warner. Do you think that if we should adopt the market ratio 
of London today, there is any more probability that other nations will 
come to us at that ratio, or as great a probability, as there would be if 
we should adopt the ratio of 15 J to 1, the ratio now existing between 
most of the silver and gold coin of Europe f 

Secretary Sherman. The trouble is that the ratio of 15.} to 1 is not 
the true ratio between the two metals, owing to two or three causes. 

Mr. Warner. Is not the change caused maiuly by the recent German 
and the American laws, and the suspension of silver coinage iu Europe ? 

Secretary Sherman. No ; it is caused mainly by the falling off of the 
enormous drain of silver to India and China, by the increased production 
of silver, and the estimated enormous yields that are to come in a few 
years from the mines that are now beiug developed in onr Western 
country, and also by the action of the German and the French Govern- 
ments in limiting the coinage of silver. The English first commenced 
this iu 1815; then came the action of France and other nations in the 
formation of the Latin Uuion, and then the action of the German Gov- 
ernment, and our own coinage act in 1873. 

Mr. Warner. But is it not true that in the early part of this century 
the proportion of the production of silver to gold was much greater 
than the present proportion ? 

Secretary Sherman. Yes, that is true; but the aggregate of exchanges 
as well as values have enormously changed since then. The nominal 
prices of things now, except in cases where human devices have cheap- 
ened commodities by facilitating their production, are two or three times 
as great as they were in the beginning of this century. The use of gold 
to settle balances of trade has enormously increased. 

Mr. Warner. To recur to the opinion which you have expressed that 
under free coinage we should be put at a disadvantage in our trade with 
other countries, or be liable to have our commodities taken from us at 
less value than we are getting for them now ; do you really think that 
that would be the case ? Would our people part with more commodities 
for the same weight of silver under free coinage than they do now? 

Secretary Sherman. No; but we would be reduced to a single silver 
standard instead of what we have now — a single gold standard — and we 
would gain nothing. We are now competing successfully with foreign 
nations on the gold standard, but we would then be competing at the 
disadvantage of having an inferior metallic standard. 

Mr. Claflin. And would not that single standard be changing con- 
stantly in comparison with the gold standard of Europe, just as our cur- 
rency has been % 

Secretary Sherman. Yes. 

Mr. Warner. Is it not a fact that the value of gold now, under the 
German law demonetizing silver and umlier our law of 1873 and under 
the laws of other States iu Europe suspending the coinage of silver— is 



it not the fact that under these laws the value of an ounce of gold is 
very different from what it would have been if those laws had never 
been passed? And if that be true, then, by those laws (including our 
own law) has not the value of gold as a standard been changed? 

Secretary Sherman. I do not think that our law has had the slightest 
effect iu that respect. At the time the law was passed there were no 
silver dollars in circulation. But all the causes that I have mentioned 
have contributed to disturb the former relation between gold and silver. 
If you ask me whether that has not been injurious, and has not contrib- 
uted to raise the relative price of gold, I say, frankly, yes; but how can 
we single handed help it? We can only conform the law to existing 
facts. In adopting a new ratio we only do what has been done many 
times — what our ancestors did ; we must weigh and adjust carefully the 
present relative value of the two metals. Between the time of the fram- 
ing of the Constitution and the passage of the act of 1792 experiments 
of the most delicate character were carried on at different places for the 
purpose of ascertaining the real comparative value of the two metals, 
and when Hamilton ascertained that, he fixed the coinage ratio at pre- 
cisely the market ratio. He said that it was important to maintain the 
two metals in circulation, but that it could be done only by adopting the 
market value as the legal ratio, and in this way the ratio was fixed at 
15 to 1. On the same basis the French, a little later, fixed it at 15£ to 
1. This divergence leit the silver here and gold went abroad. We tried 
to correct this in 1834 by making the ratio 16 to 1, and then the silver 
disappeared and gold came into circulation here. 

Mr. Wareer. But is it not true that what you call the market value 
depends very largely upon the laws of the different States establishing 
the ratios'? 

Secretary Sherman. It depends somewhat upon those laws, but laws 
must recognize facts ; natural facts are never controlled by laws. Law 
cannot give value to a grain of sand. 

Mr. Warner. But if the laws of different countries give greater use 
to one metal and less to another, then do they not contribute directly to 
determining the relative market value of the two"? 

Secretaiy Sherman. If the passage of laws was the sole operating 
cause of the present divergence of market value from the old ratio, then 
the re-enactment of the old laws might restore the old ratio; but it is 
only one and the least of several causes, and therefore you must examine 
the other causes and establish your new ratio so as to get at the market 
value irrespective of all laws. Your laws must recognize market values, 
for they cannot control them. 

Mr. Warner. Suppose we should establish the market ratio to day, 
and to-morrow or next month France should demonetize. silver and offer 
her stock on the market, and call for gold to take its place in the cur- 
rency of France, where would the American ratio be then % 

Secretary Sherman. My answer to that is that I would wait in pa- 
tience and expectancy until France and England ask us, as I believe 
they will within two years from this time, to join them in making a new 
ratio ; or, if we are compelled to make a new ratio, it should be such a 
one as will not induce other rations to send to us the depreciated metal 
at above its market value as bullion. We are strong, but we are not 
strong enough to make 16 ounces of silver equal to 1 ounce of gold. The 
inevitable result of such an attempt would be that we would lose our 
gold and have a single standard of silver coin. If, on the contrary, we 
adopt a ratio of about 18 to 1, other nations would not bear the loss of a 
sale at that rate of their silver coin. The true way is to wait, using sil- 



71 

ver at the present ratio 011I5- to the extent that is demanded lor conven- 
ient use, and no more. 

Mr. Warner. Under existing laws, must it not follow as a necessary- 
consequence that gold will still further appreciate as compared with 
property and commodities generally 1 From the very nature of things, 
must it not be so, and, consequently, will we not be subject to a con- 
stant appreciation of gold under our standard if we leave it as it is 1 ? 

Secretary Sherman. My impression is that commercial exchanges 
being conducted, as they are now, very largely by paper money or pub- 
lic securities, there will not be any further appreciation; but that is a 
matter of which you, gentlemen, can judge as well as I. Now, I wish 
to say this : All our Treasury operations, which have been very heavy 
during the last few months, have been conducted without the use of 
gold or silver. At the end of the first fifteen days in April, after we had 
paid out about $80,000,000 for called bonds, I made inquiry to ascertain 
now we had paid it, and whether we had used coin, and it turned out 
that no coin whatever had been used. Sixty-five millions of the amount 
was paid by exchanges of bonds for bonds, and the remaining fifteen 
millions by drafts which were paid through the clearing-house. 

Mr. Warner. Between countries only balances are at any time paid 
in money, I believe, but nevertheless you do not mean to intimate, I 
suppose, that if half of the metallic money was destroyed prices would 
not be affected % 

Secretary Sherman. ~No. 

Mr. De La Matyr. Our bonds that are out we have contracted to pay 
in coin, and our silver was coined at its present value. Now, do we not 
appreciate the bonds when we appreciate the value of the coin in which 
we agreed to pay them % 

Secretary Sherman. Our bonds were sold at a time when the gold 
unit was, as it still is, the standard of value. The silver coin has not 
for nearly forty years been the standard, but, on account of the limited 
amount now in circulation, has been lifted up to the gold value, in spite 
of its market depreciation. It would seem to me that after we have 
brought our paper, our bonds, and our silver up to the gold basis, the 
better way is to adhere to it rather than to take advantage of the de- 
preciation of silver to pay in a coin of less market value than was re- 
ceived for our bonds. 

Mr. De La Matyr. You think it would be dishonest and a measure 
of repudiation to do otherwise % 

Secretary Sherman. I do not like to use the word dishonest, because 
I know a great many honest men who do not think that such a measure 
would be dishonest; but I am quite satisfied that it would be very bad 
public policy, and that if we should adopt it we would suffer terribly in 
consequence, not only in public credit but in actual loss of trade and 
money. 

Mr. Warner. The Secretary has expressed the opinion here that un- 
limited coinage of silver would operate to expel gold from the country. 
The question I want to ask is whether, under the present law requiring 
the coinage of not less than two millions of silver a month, the same 
effect will not be produced iu a somewhat longer time, and whether to 
avoid this result it will not become necessary at no distant day to change 
the present law, and whether the Secretary would not recommend a 
change 1 ? 

Secretary Sherman. I do recommend a change of the present law. I 
think with you that the coinage of silver dollars at the rate of two mil- 
lions a month would finally (it might take three or four or five years) so 



1Z 

load us down with depreciated silver coin that, by the necessities of the 
government, it will be forced into circulation and be depreciated to its 
bullion value; but I take it that the good sense of Congress, enlight- 
ened as it will be by public discussion, will find some solution of this 
silver question. My hope is that you will suspend tbe coinage of the 
silver dollar, which now the people refuse to take, or at once return to 
the Treasury when issued, and await a negotiation for a new ratio; or, 
if that is deemed unadvisable, that it will increase the weight of the 
silver dollar so as to make it fairly equal in market value to the gold 
dollar. Then I would be willing to take the risk of the free coinage of 
both metals. 

Mr. Clafltn. But as you purchase on bullion value now, the govern- 
ment would not suffer except by the loss of interest, unless there was 
still further depreciation. 

Secretary Sherman. No. 

Mr. Wood. What would be the effect of passing this bill, in your 
opinion, Mr. Secretary? 

Secretary Sherman. I think I have already answered that. I think 
the effect would be to bring us to the single silver standard and the ex- 
pulsion of gold. 

Mr. Warner. The coinage of our silver dollar has really the same 
effect upon gold, has it not, that an increase of two millions a month of 
legal-tender notes would have % 

Secretary Sherman. No; because we cannot get the silver dollars 
into circulation. We have tried it in every way, but we cannot succeed. 

Mr. Vance. Can't you pay them out for bonds ? 

Secretary Sherman. There would be no object in that. They would 
come right back. 

Mr. Warner. But with unlimited coinage the government would not 
have that question to meet at all. 

Secretary Sherman. No. 

Mr. Warner. It would simply be with the public to say whether they 
would have the silver or not. 

Secretary Sherman. O, if Congress says so, we can make the public 
take the silver. 

Mr. Warner. But under unlimited coinage the government would 
have nothing to do with putting coius into circulation ? 

Secretary Sherman. No ; but there would be no gold coin at all; not 
a dollar. 

Mr. Warner. But that you have stated will sooner or later be the 
result under the present law. 

Adjourned. 



APPENDIX. 



MONETARY CONVENTION CONCLUDED DECEMBER 23, 1885, BETWEEN 
FRANCE, BELGIUM. ITALY, AND SWITZERLAND. RATIFIED AT PARIS 
JULY 23, 1866. 

[Translated by Mrs. A. J. Warner.] 

His Majesty the Emperor of France, His Majesty King of Belgium, 
His Majesty King of Italy, and the Swiss Confederation, equally de- 
sirous of establishing a more perfect harmony in their monetary legis- 
lation to remedy the inconveniences which proceed from the diversity 
of standard in their silver money of account in the business transac- 
tions between the inhabitants of their respective States aud for the 
furtherance of a uniformity of weights, measures, and coins, have de- 
termined to conclude a convention for this purpose, and have appointed 
commissioners, with full powers, as follows : 

[Here follow the names of the commissioners, with their titles.] 

Who, after exhibiting their respective credentials, and finding them 
in good and due form, concurred in the following articles : 

Art. 1. France, Belgium, Italy, and Switzerland are constituted a 
State of Union in relation to the weight, fineness, model, and circula- 
tion of their gold and silver coins. 

Nothing is changed at present in the legislation respecting debased 
money in any of the four States. 

Art. 2. The high contracting parties agree neither to coin nor allow 
to be coined, with their imprint, any gold coins excepting pieces of a 
hundred francs, of fifty francs, of twenty francs, of ten francs, and of 
five francs, fixed as to weight, fineness, tolerance, and diameter as fol- 
lows : 





Weight. 


Fineness. 




Kind of pieces. 


Correct 
weight. 


Tolerance of 
weight. 


Fineness. 


Tolerance of 
fineness. 


Diameter. 


Francs. 

f 100 

| 50 

Gold ■{ 20 

I 1 


Grammes. 
32, 258. 06 
16, ISP. 03 
6, 451. 61 
3, 225. 80 
1, 612. 90 


Thousandths. 

\ ' 

\ * 

3 


Thousandths. 

i 

*■ 900 

1 

J 


Thousandths. 
2 


Millimetres. 
{ 35 

\ I? 

1 19 
I 17 



They shall receive without distinction into their public treasuries the 
pieces of gold coined according to the preceding conditions in either of 
the four States, with the right, however, to refuse those pieces where 
weight is reduced by wear one-half per cent, below the tolerance indi- 
cated above, or from which the imprint has disappeared. 

Art. 3. The contracting governments bind themselves neither to fab- 
ricate, nor permit to be fabricated, any silver coins excepting pieces of 
five francs, in weight, fineness, tolerance, and diameter set out below : 



74 





"Weight. Fineness. 




Kind of piece. 


Correct 
weight. 


Tolerance of 
weight. 


Fineness. 


Tolerance of 
fineness. 


, Diameter. 


Francs. 
Silver 5 


Grammes. 
25 


Thousandths. Thousandths. 
3 900 


Thousandths. 


Millimetres 
37 



They shall reciprocally receive the said pieces in their public banks 
under the right to exclude those of which the weight has been reduced 
by wear one per cent, below the tolerance indicated above, or from which 
the imprint has disappeared. 

Art. 4. The contracting parties shall hereafter fabricate only pieces 
of silver of two francs, of one franc, of fifty centimes, and of twenty 
centimes, under the conditions of weight, of fineness, of tolerance, and 
diameter determined below. 







Weight. 


Fineness. 




Kind of pieces. 


Correct 
weight. 


Tolerance of 

■weight. 


Fineness. 


Tolerance of 
fineness. 


Diameter 


Francs. 

Is 


Centimes. 
00 
00 
50 
20 


Grammes. 
10 00 
5 00 
2 50 
1 00 


Thousandths. 

\ 5 

7* 
10 


Thousandths. 

\ 635 
J 


Thousandths. 
3 


Millimetres. 
( 27 
J 23 
1 18 
I 16 



Those pieces must be recoined by the governments which issue them 
when they become reduced by wear five per cent, below the tolerance 
indicated above, or whenever the imprint shall ha^e disappeared. 

Art. 5. The pieces of silver of two francs, of one franc, of fifty cen- 
times, and of twenty centimes, coined under conditions differing from 
those indicated in the preceding article, must be retired from circulation 
before January 1, 1869. 

The time is extended until January 1, 1878, for the pieces of two francs 
and of one franc, put in circulation in Switzerland bv virtue of the law 
of January 31, 1860. 

Art. 6. The pieces of silver fabricated under the conditions of Article 
4 shall be legal tender between private persons of the State which has 
coined them up to the sum of fifty francs for each payment. 

The State that puts them into circulation shall receive them from citi- 
zens without limitation of quantity. 

Art. 7. The public treasuries of each of the four countries shall re- 
ceive the silver pieces coined by any of the other contracting States, con- 
formably to Article 4, up to the amount of one hundred francs for each 
payment made to the said treasuries. 

The Governments of Belgium, of Fiance, and of Italy shall receive 
upon the same terms, until January 1, 1878, the Swiss pieces of two 
francs and of one franc emitted in virtue of the law of Jauuary 31, 1860, 
and which during the same period are similar in all respects to the pieces 
coined under the conditions of Article 4. The whole is subject to the 
provision relative to wear given in Article 4. 

- Art. 8. Each of the contracting governments pledges itself to take 
from private parties or from the public banks of the other States the 
money of account of silver which has been put in circulation, and to 



75 

exchange it for an equal value of legal-tender money (pieces of gold or 
of silver five-francs), with the condition that the sum presented for ex- 
change shall not be less than one hundred francs. 

This obligation shall continue two years after the expiration of the 
present treaty. 

Art. 9. The high contracting parties shall put in circulation coins 
of silver of two francs, of one franc, of fifty centimes, and of twenty 
centimes, coined under the conditions given by Article 4, to the amount 
only of six francs for each inhabitant. 

The quantity shall be determined by taking the last census made in 
each country and the presumed increase of population until the expira- 
tion of the present treaty. 

Table for the various Stales. 

France 239, 000, 000 francs. 

Belgium 32,000,000 francs. 

Italy 141,000,000 francs. 

Switzerland 17, 000, C00 francs. 

There shall be deducted from the foregoing sums, which the govern- 
ments have a right to coin, the sums already in circulation : 

For France, in virtue of the law of May 25, 1864, in pieces of fifty 
centimes and twenty centimes, about sixteen millions. 

For Italy, in virtue of the law of August 24, 1862, in pieces of two 
francs, one franc, fifty centimes, and twenty centimes, about one hun- 
dred millions. 

For Switzerland, in virtue of the decree of January 31, 1860, in pieces 
of two francs and one franc, about ten million five hundred thousand 
francs. 

Art. 10. The date of the coinage shall be inscribed upon the pieces 
of gold and silver coined hereafter in the four States. 

Art. 11. The contracting governments shall communicate annually 
the proportion of their circulation of gold and silver, the account of re- 
demption and recoinage of their gold and silver money, the account of 
the redemption and recoining of their old coins, and the whole situa- 
tion, and all the administrative documents relating to money. 

They shall give an impartial account of all the facts which concern 
the mutual circulation of their gold and silver coins. 

Art. 12. The right to join the present convention is reserved for any 
other State which may accept the obligations and adopt the monetary 
system of the Union, as far as concerns their gold and silver coins. 

Art. 13. The execution of the mutual obligations included in the 
present convention, as far as may be, is subject to the methods and 
regulations established by the laws of the contracting States, which are 
considered to promote the fulfillment, and which shall cause it to be 
carried into effect with the least possible delay. 

Art. 14. The present convention shall remain in force until January 
1, 1880. 

' If one year previous to that time uo notice has .been given, it shall 
remain binding by right for a further period of fifteen years, and so 
continue for periods of fifteen years, except notice be given. 

Art. 15. The present convention shall be confirmed and the ratifica- 
tion shall be exchanged at Paris within six months, or earlier, if possible. 



76 

In proof of which the respective commissioners have signed the pres- 
ent convention and affixed their seals. 
Done and four copies made at Paris, December 23, 1865. 
For France : 

E. DE PABIEE. 

PELOUZE. 
For Belgium : 

FORTAMPS. 

A. KREGLINGER. 
For Italy : 

ARTOM. 

PRATOLONGO. 
For Switzerland : 

KERN. 

FEER HERZOG. 



MANIFESTO RELATIVE TO THE COINAGE OF SILVER DURING THE YEAR 
1876, IN SWITZERLAND, BELGIUM, FRANCE, ITALY, AND GREECE. 

[Translated by James Gilmore for the Cincinnati Commercial. ] 

The undersigned, delegates of the Governments of Switzerland, of 
France, of Italy, and of Greece, in conference assembled, in conformity 
with Article 5 of the Monetary Manifesto of February 5, 1875, and 
regularly authorized for this purpose, have decided on the followiug 
plans, subject to the approval of their respective governments : 

Article 1. The contracting governments agree, for the year 1876, 
neither to coin nor allow to be coined any five-franc pieces, according to 
conditions determined by Article 3 of the compact of December 23, 1865, 
excepting for an amount not exceediug the sum of 120,000,000 of francs, 
fixed by Article 1 of the supplementary compact of January 31, 1874. 

Art. 2. The said sum of 120,000,000 francs is distributed as follows : 

Francs. 

1. For Belgium 10,800,000 

France 54,000,000 

Italy 36,000,000 

Switzerland 7,200,000 

2. As to Greece, which acquiesced in the compact of December 23, 
1865, by a manifesto of the 26th of September, 1868, the complement 
fixed for this government, in proportion to that of the other contract- 
ing powers, is fixed at the sum of 3,690,000 francs. 

3. Beyond the complement fixed in the paragraph preceding, the 
Government of Greece is exceptionally authorized to cause to be coined 
and to put into circulation, on her territory, during the year 1876, a 
sum of 8,400,000 fraucs in silver pieces of five francs, said sum being in- 
tended to facilitate the withdrawal of the different coins at present cir- 
culating, and to substitute for the same five-franc pieces, according to 
the conditions determined by the compact of 1865. 

Art. 3. Are deducted from the complements fixed in the first para- 
graph of the preceding article the silver coiu certificates delivered up to 
this date, according to the conditions determined by Article 6 of the 
manifesto of February 5, 1875. 

Is likewise deducted from the total sum of 12,000,000 of francs assigned 
to Greece, by paragraph 2 and 3 of the preceding article, the sum of 
2,500,000 francs which the Government of Greece had been authorized to 



77 

cause to be coined in 1876 as equivalent of the silver coin certificates 
which the other contracting governments have been allowed to issue 
against silver bullion. 

Art. 4. A new monetary conference will be held at Paris in the mon*h 
of January, 1877, between the delegates of the contracting governments. 

Art. 5. Until after the meeting of the conference referred to in the 
preceding article, there shall be delivered no silver coin certificates for 
tbe year 1877, except for a sum not exceeding the half of the comple- 
ments fixed by the paragraphs 1 and 2 of the Article 2 of the present 
manifesto. 

Art. 6. The Article 11 of the compact of the 23d December, 1865, in 
regard to the exchange of correspondence touching monetary facts and 
documents, is completed by the following arrangement: 

The contracting governments will give to each other, mutually, advice of any facts 
which may reach their knowledge on the subject of adulteration and counterfeiting of 
their gold and silver coins in the countries belonging or not belonging to the Monetary 
Union, especially in regard to the processes employed, prosecutions brought, and the 
suppressions arrived at. They will confer with each other on the measures to be taken 
in common in order to prevent the adulterations and counterfeits, cause the same to 
be suppressed in all places where they have been manufactured, and hinder the repe- 
tition of the same. 

Art. 7. The present manifesto will be in force from the moment that 
notice thereof shall have been made, in accordance with the special laws 
of each one of the five governments. 

In faith of which the respective delegates have signed the present 
manifesto, and have thereto placed the seals of their respective States. 
Done and five copies made at Paris, 3d February, 1876. 
For Switzerland, 

KERN, 
FEER-HERZOG. 



For Belgium, 
For France, 

For Italy, 
For Greece, 



AD LAINCTELETTE, 

EST. DE PITTEURS HIEGARTS. 

DUMAS, 

DE SOUBEYRAN, 

CB. JAGERSCHMIDT. 

0. BARALTS, 
RESSMAN. 

X. S. DELYANNI. 



RENEWAL OF THE LATIN UNION. 

By George Walker. 

[From the Bankers' Magazine for January, 1879.] 

The Paris Journal des Debets of November 18 contains an article, 
by Baron Jules de Reiuach, on the new treaty which has been agreed 
upou by the representatives of Belgium, France, Greece, Italy, and 
Switzerland, by which the so-called Latiu Union is coutiuued ih exist- 
ence until the 1st of Jauuary, 1886. The conference held at Paris for 
this purpose closed its eleventh and last session on the 5th of November. 



78 

The unprecedented number of its sittings indicates that its discussions 
were more than usually interesting. M. de Reinach describes the con- 
ference as differing essentially from that of 1865. The latter was, in a 
strict sense, a monetary conference, in which no questions of principle 
were put forward or debated. Its sole object was to assimilate the coins 
of several contiguous countries, so as to give them an international cir- 
culation and a legal-tender character within the territory of the treaty- 
making States. The conference of 1878 was of quite another character; 
it was a politico-economical conference, and the president, who is also 
one of the presiding officers of the Paris Society of Political Economists, 
might well have imagined himself at one of the monthly meetings of 
that body. 

The precise nature of these economical discussions can only be con- 
jectured until the publication of the proces-verbaux, which will probably 
not take place till the action of the conference has been submitted to the 
legislatures of the several contracting states and confirmed by them. 
M. Leon Say has already brought a bill into the French Chambers to 
ratify the treaty, but the full particulars of the measure, as reported by 
him, have not reached us. Meanwhile the article of M. de Eeinach 
may be looked upon as semi official, in view of the well-known intimacy 
existing between him and the finance minister and the confidential 
position which he occupies towards the financial administration of 
France. 

The treaty of 1865 was to expire in January, 1880, provided a year's 
notice to terminate it was given by one of the signatories; otherwise it 
was to remain in force for fifteen years longer. Rather than remain 
bound together for so many years by a convention, the operation of 
which had essentially changed since it was entered iuto, the contracting 
States would have abrogated it altogether. Switzerland, therefore, 
which more than any other country has been dissatisfied with the treaty 
since the silver agitation began, acting on her own behalf, and doubtless 
at the desire of all her associates, gave the notice which was necessary 
to terminate the union in January, 1S80. 

This being done, the question was whether to draw up an entirely new 
treaty or to amend the old one. M. Leon Say proposed the latter plan, 
and it was adopted. One of the most important new questions to be 
considered was as to the steps to be taken to wind up the treaty (liquider 
la situation) when the term of it shall have expired ; and another and 
more immediately pressing one was how to deal with Italy and Greece, 
States which are under a suspension of specie payments, and to provide 
against the possible contingency of other States falling into the same 
difficulty. The treaty of 1865 did not provide for such a state of things, 
inasmuch as Italy did not suspend till May, 1866, and Greece, which 
joined the union in 1868, was then a specie-paying country. As the 
case now stands, paper money has driven coin out of Italy, and the 
greater part, both of its full-valued silver five-franc pieces and of its 
divisionary token money, have taken refuge in France, Belgium, and 
Switzerland. For all beneficial purposes to her associates, Italy would 
be better out of the union than in it. 

The excessive accumulation of silver coin in certain parts of the union, 
and particularly at the Bank of France, is an evil mainly due to the 
currency system of Italy. The Italian plenipotentiaries admitted this 
fact, and declared the determination of their government to relieve the 
situation by a return to specie payments at the earliest day possible. 
On the 7th of September, 1878, there were in circulation in Italy 
paper notes of the denominations of J, 1, and 2 francs to the amount of 



79 

112,000,000 of francs ($22,500,000), and the maximum emission of such 
notesanthorized was 135,000,000 ($27,000,000). The total authorized 
issaeof all denominations of paper money is fixed by royal decree of 
February 26, 1876, at one milliard ($200,000,000). These are denominated 
consortia! notes, and are issued by the six associated banks on the de- 
posit by the government with them of its bonds to that amount. There 
are, besides, bank notes not so secured, but the latter are not a legal 
tender. 

The Italian Government having declared its willingness to suppress 
its notes of smaller denominations than 5 francs, the other contracting 
States have agreed to assist the operation by withdrawing from circula- 
tion, and refusing to take at their public treasuries, the silver division- 
ary coins of Italy. The arrangemerits for accomplishing these ends 
were made the subject of article 8 of the treaty, the essentia' provi- 
sions of which will be presently stated. By the treaty of 1865, the 
amount of divisionary coins permitted to each of the contracting nations 
was 6 francs a head of their population. By the latest census returns, 
this allowauce gives to Belgium 33,000,000 of francs; to France and 
Algeria 210,000.000; to Greece 10,500,000; to Italy 170,000,000, and to 
Switzerland 18,000,000. Italy, however, owing to the loss of her small 
coins since the suspension of specie payments, has replaced them to 
such an extent by small notes that the aggregate sum of her division- 
ary money, coin and notes, now amounts to 270,000,000 of francs, or 
100,000,000 in excess of her allotted quota. The whole of this excess is 
supposed to be in the other countries of the Union, France being un- 
derstood to have about 87,000,000 and the other States 13,000,000. It 
will be impossible to drive these small coins back to Italy so long as 
the other countries continue to give them currency ; and, on the other 
hand, Italy cannot suppress her small notes until she has coins to put 
in place of them. Article 8 of the treaty, therefore, makes the following 
provisions : 

It should be premised that each of the contracting States has agreed 
to redeem its divisionary coins, when presented in sums of not less than 
100 francs, either in gold money or in silver 5-franc pieces. This obliga- 
tion is to continue for one year after the termination of the treaty. By 
article 8 the other States have agreed not to receive Italian divisionary 
coins after January 1, 1880. France is to gather up these coins and 
deliver them to Italy, which is to pay cash to the other States for all 
received from them up to 13,000,000 of francs. The French contingent 
of 87,000,000 is to be paid— 17,000,000 in cash and the balance in three 
annual installments — in 1881, 1882, and 1883, with 3 per cent, interest 
on the deferred payments; all above 100,000,000 is to be paid for in cash. 
The small notes which Italy engages to retire are not to be reissued. 
After the resumption of specie payment in Italy her small coins will be 
again received by the other powers as heretofore. 

Greece has coined silver drachmas under the treaty of 1865, and a con- 
siderable number of them now circulate in France, Belgium, and Swit- 
zerland. They have increased in those countries since legal-tender paper 
has taken the place of metallic money in Greece. The delegate of the 
Hellenic Government explained to the Conference that during the last 
year a loan had been contracted with the National Bank of Greece and 
the Ionian Bauk, by which the privilege of legal teuder had been con- 
ceded to their notes so long as the loan remained unpaid. The actual 
amount of such notes issued is 73,000,000 ($14,600,000), and the maxi- 
mum authorized 7S,000,000 ($15,000,000). The two banks have a specie 
reserve of about 16,000,000, or more than 20 per cent. Before the sus- 



80 

pension of specie payments there were about 45,000,000 of notes in cir- 
culation, the lowest denomination being of 10 francs. The Greek Gov- 
ernment is very anxious to resume specie payments, and will attempt to 
accomplish it by a credit operation, but it is not able to enter into any 
engagements with the other powers on the subject, nor to fix any date 
at which resumption can be accomplished. 

The gold coins of the several States are to continue, as heretefore, of 
the denomination of 100, 50, 20, 10, and 5 francs, but the coinage of 
gold 5-franc pieces remains provisionally suspended. This suspension 
is owing to the too rapid abrasion of those coins. Experiments made 
in 1868 showed that gold 20-franc pieces used themselves up in about 
forty years, 10-franc pieces in tweuty years, and 5 franc pieces in eight 
years. 

Both gold and silver 5-franc pieces are to be admitted into the public 
treasuries of the contracting governments without distinction. The 
Bank of France and the National Bank of Belgium have come into this 
arrangement by agreement, during the full term of the treaty, to receive 
those coins at their counters. Although the legal tender of the larger 
foreign coins seems not to be explicitly imposed on individuals, they 
will not hesitate to ratify it in fact, as the action of their respective gov- 
ernments and banks leaves no motive to private persons for refusing 
them. Token coins (those of less than 5 francs) are declared a legal 
tender in payments of not more than 50 francs. 

The coinage of silver 5 franc pieces is provisionally suspended, and 
cannot be resumed except by the unanimous consent of the contracting 
States. This agreement is also made applicable to the year 1879 — the 
last year of the old treaty. An exception has, however, been made in 
favor of Italy, which is to be allowed to coin 20,000,000 of francs. 
Though not so expressed in the treaty, it is understood that this con- 
tingent is allowed to Italy to enable her to replace her old silver coins 
with 5 franc pieces. Even if she should elect to buy new silver of Ger- 
many for the whole amount, rather thau melt down the coins of the 
Bourbon dynasties, no objection would probably be made, as the quan- 
tity of silver pressing upon the market would be thereby measurably 
reduced. 

As already stated, the new treaty is to remain in force from January 
1, 1880, to January 1, 1886. If, one year. prior to the latter date, no 
notice shall have been given to dissolve it, it is to be continued there- 
after from year to year. 

Although no other provisions were made in the treaty respecting 
legal-tender paper in circulation in Italy and Greece than those under 
article 8, it was nevertheless agreed to be proper to insert in the proces 
verbaux of theOonference certain declarations on that subject. Belgium, 
accordingly, declared that, if in future either of the States should estab- 
lish the cours force, or should render the consequences of it more onerous 
to other States by increasing the issues of legal-tender paper, the Belgian 
Government would admit that the other States might take any measures 
proper to protect themselves. The Belgian delegate further declared 
that a State which should be forced to suspend specie payments should 
not be allowed to recover its liberty of action towards the other States 
of the Union, even after the treaty had expired, until it had relieved its 
associates from any burdeus which such a state of things might have 
imposed on them. It is to be hoped that these cautionary declarations 
will never need to be acted on, and the considerable period fixed for the 
duration of the treaty will, in all probability, enable the States now under 
suspension to bring themselves into line, so that its indefinite prolonga- 
tion may not be imperiled. 



81 

Baron de Reinach concludes his article, of which the foregoing is a 
summary, with the following passage : 

" If we now cast our eyes over the labors of the Conference, we cannot 
but felicitate ourselves on the results arrived at, in view of the different 
ways in which the monetary question is looked at by the contracting 
States. Switzerland and Belgium do not conceal their sympathies for 
the single gold standard ; France is bimetallic ; but before pronouncing 
upon the propriety of continuing the coinage of silver 5-frauc pieces, 
which is, nevertheless, reserved in the treaty, she desires to know the 
results of the monetary laws recently enacted in America. In this state 
of things it was necessary, as far as possible, to relieve the present situa- 
tion, which might become embarrassing by reason of the liquidation 
which would have to be made at the eud of the next year, when the treaty 
of 1865 would expire. To assist Italy, therefore, to establish her metallic 
circulation was not only a proof of sympathy given to that State, but 
it was also an act of good policy on the part of the other contracting 
parties. If they had precipitated matters by not renewing the treaty, 
Italy aloue would have profited by it. 

" Thus, although there was a difference of opinion between the con- 
tracting parties on the theoretical side of the monetary question, the 
Latin Union has been renewed and consolidated. Both governments 
and people will, without any doubt, learn the satisfaction that the five 
nations are to contiuue to be united by the bond of a common monetary 
circulation ; and it is to be hoped that this union established between 
them in respect to money will continue to exercise a happy influence 
on their political and business relations." 

It is not the purpose of the present article to make any lengthened 
comments on the new Latin treaty as it bears upon the United States. 
It cannot, however, be overlooked that the clause which suspends the 
coinage of silver for seven years longer is likely to have a most impor- 
tant influence on the future monetary system of this country. For the 
largest part of the decade which is now opening, and which is so full of 
promise in all its material aspects, we shall be the only silver-coining 
country of the civilized world. There can be little doubt that this will 
make us a silver country, almost as absolutely as India and China are 
silver countries, unless the restrictions imposed by the silver bill of last 
winter are rigidly adhered to — that is, a coinage limited to two millions 
a mouth, with all the resulting profit reserved to the Federal Govern- 
ment. This is not such a double standard as the silver party bargained 
for, nor is it such a bimetalism as those who favor an international sys- 
tem desire to secure. No party will be satisfied with it, and further 
legislation, either forward or backward, seems to us imperatively neces- 
sary. If we go forward, and open the mints to free coinage, all our gold 
will leave us, and we shall elect to become a silver country pure and 
simple, which is just what Mr. ( Joschen desires. If we go backward and 
repeal the silver bill, making silver token money only, with, perhaps, a 
large field given to it by a liberal legal tender clause, we shall force 
England, Germany, and the Latin Union to face the situation, and to 
share with us the perils and inconveniences which a scramble for gold 
will certainly entail. In that scramble the United States would stand a 
better chance to come out unscathed than any other nation. This is 
the course recommended by M. Cernuschi, and we incline to think that 
it promises the earliest and most substantial victory to the bimetallic 
cause. 

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